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Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-02-25 · 422 added, 455 removed, 435 unchanged (67% of the section changed)

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Segment Reporting

International Markets

Group Disability and Other

Cigna Healthcar e

Other Operations

Investment Assets

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We encourage you to read this MD&A in conjunction with our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K ("Form 10-K") and the "Risk Factors" contained in Part I, Item 1A of this Form 10-K.

For comparisons of our results of operations for 2019 compared with 2018, please refer to the previously filed MD&A included in Part II, Item 7 of our Form 10-K for the year ended December 31, 2019.

Unless otherwise indicated, financial information in this MD&A is presented in accordance with accounting principles generally accepted in the United States of America ("GAAP").

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Changes in percentages are expressed in basis points ("bps").

In this MD&A, our consolidated measures “adjusted income from operations,” earnings per share on that same basis and “adjusted revenues” are not determined in accordance with GAAP and should not be viewed as substitutes for the most directly comparable GAAP measures of “shareholders’ net income,” “earnings per share” and “total revenues.” We also use pre-tax adjusted income from operations and adjusted revenues to measure the results of our segments.

We use adjusted income from operations as our principal financial measure of operating performance because management believes it best reflects the underlying results of our business operations and permits analysis of trends in underlying revenue, expenses and profitability.

We define adjusted income from operations as shareholders’ net income (or income before taxes for the segment metric) excluding realized investment gains and losses, amortization of acquired intangible assets, special items and prior to 2020, results of Anthem, Inc.

and Coventry Health Care Inc.

(“Coventry”) (collectively, the “transitioning clients”) (see the “Key Transactions and Business Developments” section of this MD&A for further discussion of transitioning clients).

Cigna’s share of certain realized investment results of its joint ventures reported in the International Markets segment using the equity method of accounting are also excluded.

Income or expense amounts excluded from adjusted income from operations because they are not indicative of underlying performance or the responsibility of operating segment management include:

• Realized investment gains (losses) including changes in market values of certain financial instruments between balance sheet dates, as well as gains and losses associated with invested asset sales.

• Amortization of acquired intangible assets because these relate to costs incurred for acquisitions.

• Results of transitioning clients prior to 2020, because those results are not indicative of ongoing results .

• Special items, if any, that management believes are not representative of the underlying results of operations due to the nature or size of these matters.

The term adjusted revenues is defined as total revenues excluding the following adjustments:

revenue contribution from transitioning clients prior to 2020, special items and Cigna’s share of certain realized investment results of its joint ventures reported in the International Markets segment using the equity method of accounting.

In this MD&A, our consolidated measures "adjusted income from operations," earnings per share on that same basis and "adjusted revenues" are not determined in accordance with GAAP and should not be viewed as substitutes for the most directly comparable GAAP measures of "shareholders' net income," "earnings per share" and "total revenues." We also use pre-tax adjusted income (loss) from operations and adjusted revenues to measure the results of our segments.

The Company uses "pre-tax adjusted income (loss) from operations" and "adjusted revenues" as its principal financial measures of segment operating performance because management believes these metrics best reflect the underlying results of business operations and permit analysis of trends in underlying revenue, expenses and profitability.

We define adjusted income from operations as shareholders' net income (or income before income taxes for the segment metric) excluding net realized investment results, amortization of acquired intangible assets, results of transitioning clients prior to 2020 and special items.

Cigna's share of certain realized investment results of its joint ventures reported in the Cigna Healthcare segment using the equity method of accounting are also excluded.

Special items are matters that management believes are not representative of the underlying results of operations due to their nature or size.

Adjusted income (loss) from operations is measured on an after-tax basis for consolidated results and on a pre-tax basis for segment results.

Consolidated adjusted income (loss) from operations is not determined in accordance with GAAP and should not be viewed as a substitute for the most directly comparable GAAP measure, shareholders' net income.

See the below Financial Highlights section for a reconciliation of consolidated adjusted income from operations to shareholders' net income.

The Company defines adjusted revenues as total revenues excluding the following adjustments:

special items, revenue contribution from transitioning clients prior to 2020 and Cigna's share of certain realized investment results of its joint ventures reported in the Cigna Healthcare segment using the equity method of accounting.

Special items are matters that management believes are not representative of the underlying results of operations due to their nature or size.

We exclude these items from this measure because management believes they are not indicative of past or future underlying performance of the business.

Adjusted revenues is not determined in accordance with GAAP and should not be viewed as a substitute for the most directly comparable GAAP measure, total revenues.

See the below Financial Highlights section for a reconciliation of consolidated adjusted revenues to total revenues.

EXECUTIVE OVERVIEW

Cigna Corporation, together with its subsidiaries (either individually or collectively referred to as “Cigna,” the “Company,” “we,” “our” or “us”) is a global health services organization with a mission of helping those we serve improve their health, well-being and peace of mind.

We offer a differentiated set of pharmacy, medical, dental and related products and services offered by our subsidiaries.

Cigna Corporation, together with its subsidiaries (either individually or collectively referred to as "Cigna," the "Company," "we," "our" or "us") is a global health services organization with a mission of helping those we serve improve their health, well-being and peace of mind by making health care affordable, predictable and simple.

Our subsidiaries offer a differentiated set of pharmacy, medical, dental and related products and services.

For further information on our business and strategy, see Item 1, "Business" in this Form 10-K.

COVID-19 Update

The novel strain of coronavirus (“COVID-19”) was declared a pandemic by the World Health Organization in March 2020.

From the onset of the COVID-19 pandemic we have taken actions to drive affordability, reduce uncertainty and make health care easier.

For customers, these actions include COVID-19 related cost share waivers, expanded access to virtual care, support for access to medication and advocating for whole person health through various behavioral health initiatives.

We have supported the medical community by simplifying processes and donating medications for a COVID-19 clinical trial.

Cigna and the Cigna Foundation have assisted our communities through several initiatives including the launch of the Brave of Heart Fund that provides financial assistance to survivors of front-line U.S.

health care workers who gave their lives in the fight against COVID-19.

Cigna also provides emotional support services to their families.

The Evernorth team launched ParachuteRx, a drug cost assistance program to certain customers without health coverage due to furlough or job loss.

Cigna Medical Group was among the first in the United States to administer antibody therapies to high-risk COVID-19 patients in a non-hospital setting.

Cigna also partnered with other organizations on digital access to vaccination records for those who have received the COVID-19 vaccine to facilitate return to work and daily activities.

We have continued to support our workforce by enabling remote work where appropriate, and implemented enhanced safety protocols and programs that support the health and mental well-being of our employees.

We have continued to execute our business continuity plans over our operations such as leveraging purchasing volume across the pharmaceutical supply chain in order to mitigate risk associated with prescription drug supply.

We did not incur significant disruptions to our operations during 2020 from COVID-19.

We will continue to work with our clients, customers, providers and employees to provide support during the pandemic.

The COVID-19 pandemic has pervasively impacted the economy, financial markets and the global health care delivery systems.

The effects of the COVID-19 pandemic on the Company began to emerge in the United States at the end of the first quarter and were not material to the Company's results of operations or financial condition for that period.

Beginning in April, we experienced a significant deferral of care by our customers.

The deferral of care moderated over the course of the second quarter with utilization levels eventually returning to nearly normal levels by the end of June.

In the third quarter, we experienced increased medical utilization as we observed a reduction to the level of deferred care and our customers sought care for COVID-19 testing and treatment.

In the fourth quarter, as COVID-19 cases increased, the costs for testing and treatment exceeded the savings related to the deferral of care.

These impacts were most prevalent in the U.S.

Medical segment where fourth quarter earnings were adversely impacted by increased costs of COVID-19 care and decreased contributions from our specialty products.

Full year U.S.

Medical results reflect COVID-19 impacts of deferral of care by our customers partially offset by the cost of COVID-19 care, the cost of COVID-19 related actions including premium relief programs for employer clients, cost share waivers for customers, customer disenrollment and actions to support providers and employees.

Our Group Disability and Other results reflect significantly elevated life insurance claims related to the COVID-19 pandemic and its effects in the third and fourth quarters.

Quarterly and year-to-date earnings in our Evernorth segment also reflected effects of the pandemic, specifically, a favorable mix of claims as a result of both the type of drugs dispensed as well as the distribution method used for dispensing and fulfilling, partially offset by lower 30-day retail script volume.

Segment results are discussed further in the "Segment Reporting" section of this MD&A and discussion of the impact of COVID-19 on our investment portfolio and related considerations regarding our investment outlook can be found in Note 11 to the Consolidated Financial Statements and in the "Investment Assets" discussion of this MD&A.

While it is difficult to predict the impact of the COVID-19 pandemic on our results beyond 2020, we believe that such results may be impacted by, among other things, higher medical costs to treat those affected by the virus, lower customer volumes due to rising unemployment, lower future risk adjustment revenue due to disrupted care impeding appropriate documentation of customer risk profiles in our Medicare Advantage business, the return of costs for those who had previously deferred care, vaccine costs, continued cost share waivers, the potential for continued deferral of care, or lower investment returns.

Cigna has taken actions to enhance our liquidity that, combined with our other sources of liquidity described in the "Liquidity and Capital Resources Outlook" section below, and our current projections for operating cash flows, we believe are sufficient to support our operations and meet our obligations.

The situation surrounding COVID-19 remains fluid, and we are actively managing our response and assessing impacts to our financial position and operating results, as well as adverse developments in our business.

For further information regarding the potential impact of COVID-19 on the Company, see “Risk Factors” contained in Part I, Item 1A of this Form 10-K.

Financial Highlights

See Note 1 to the Consolidated Financial Statements for a description of our segments.

Unless otherwise specified, the commentary provided below describes our results for the year ended December 31, 2020 compared with the year ended December 31, 2019.

Results for 2018 only include Express Scripts for the period following the acquisition on December 20, 2018.

Summarized below are certain key measures of our performance by segment for the years ended December 31:

Summarized below are certain key measures of our performance by segment for the years ended December 31, 2021, 2020 and 2019:

Financial highlights by segment

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Adjusted revenues by segment

Evernorth $ 116,130 $ 96,447 $ 6,606 20 % N/M

Medical 38,451 36,519 32,791 5 11 %

International Markets 5,877 5,615 5,366 5 5

Group Disability and Other 5,264 5,182 5,061 2 2

Evernorth $ 131,912 $ 116,130 $ 96,447 14 % 20 %

Cigna Healthcare 44,652 41,135 39,089 9 5

Other Operations 3,989 8,446 8,215 (53) 3

Corporate, net of eliminations (6,475) (5,644) (3,576) (15) (58)

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Net realized investment results from certain equity method investments — 130 44 N/M 195

Special items 204 — 123 N/M N/M

Special item related to contractual adjustment for a former client — 204 — N/M N/M

Total revenues $ 174,078 $ 160,401 $ 153,566 9 % 4 %

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Adjusted income from operations $ 20.47 $ 18.45 $ 17.05 11 % 8 %

Pre-tax adjusted income from operations by segment

Evernorth $ 5,363 $ 5,092 $ 380 5 % N/M

Medical 3,807 3,831 3,502 (1) 9 %

International Markets 900 762 735 18 4

Group Disability and Other 290 501 529 (42) (5)

Corporate, net of eliminations (1,552) (1,824) (403) 15 N/M

Pre-tax adjusted income (loss) from operations by segment

Evernorth $ 5,818 $ 5,363 $ 5,092 8 % 5 %

Cigna Healthcare 3,609 4,031 3,963 (10) 2

Other Operations 889 966 1,131 (8) (15)

Corporate, net of eliminations (1,339) (1,552) (1,824) 14 15

Consolidated pre-tax adjusted income from operations 8,977 8,808 8,362 2 5

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Income attributable to noncontrolling interests 58 37 20 57 85

Net realized investment gains (losses) 279 221 (124) 26 N/M

Amortization of acquired intangible assets (1,982) (2,949) (235) 33 N/M

Special items 3,726 (810) (879) N/M 8

Net realized investment gains (losses) (1)

196 279 221 (30) 26

Amortization of acquired intangible assets (1,998) (1,982) (2,949) (1) 33

Special items (451) 3,726 (810) N/M N/M

Income before income taxes $ 6,782 $ 10,868 $ 6,570 (38) % 65 %

(1) Includes the Company's share of certain realized investment results of its joint ventures reported in the Cigna Healthcare segment using the equity method of accounting.

For further analysis and explanation of each segment's results, see the "Segment Reporting" section of this MD&A.

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2020 2020 vs.

Pharmacy revenues $ 107,769 $ 103,099 $ 5,479 $ 4,670 5 % $ 97,620 N/M

Pharmacy revenues $ 121,413 $ 107,769 $ 103,099 $ 13,644 13 % $ 4,670 5 %

Premiums 41,154 42,627 39,714 (1,473) (3) 2,913 7

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Total revenues 174,078 160,401 153,566 13,677 9 6,835 4

Pharmacy and other service costs 103,484 97,668 4,793 5,816 6 92,875 N/M

Pharmacy and other service costs 117,553 103,484 97,668 14,069 14 5,816 6

Medical costs and other benefit expenses 33,562 32,710 30,819 852 3 1,891 6

Selling, general and administrative expenses 13,030 14,072 14,053 (1,042) (7) 19 —

Amortization of acquired intangible assets 1,982 2,949 235 (967) (33) 2,714 N/M

Amortization of acquired intangible assets 1,998 1,982 2,949 16 1 (967) (33)

Total benefits and expenses 166,143 152,248 145,489 13,895 9 6,759 5

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Interest expense and other (1,208) (1,438) (1,682) 230 16 244 15

Debt extinguishment costs (199) (2) — (197) N/M (2) N/M

Debt extinguishment costs (141) (199) (2) 58 29 (197) N/M

Gain (loss) on sale of business — 4,203 — (4,203) N/M 4,203 N/M

Net realized investment gains (losses) 149 177 (81) (28) (16) 258 N/M

Net realized investment gains (losses) 196 149 177 47 32 (28) (16)

Income before income taxes 6,782 10,868 6,570 (4,086) (38) 4,298 65

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Medical customers (in thousands) 17,081 16,650 17,137 431 3 % (487) (3) %

Medical 15,013 15,548 15,389 (535) (3) % 159 1 %

International Markets 1,660 1,597 1,572 63 4 25 2

Total 16,673 17,145 16,961 (472) (3) % 184 1 %

Reconciliation of Shareholders' Net Income (GAAP) to Adjusted Income from Operations

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Net realized investment (gains) losses (1)

(158) (244) (190) (0.46) (0.66) (0.50)

Amortization of acquired intangible assets 1,494 1,431 2,248 4.38 3.88 5.92

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Special items

Integration and transaction-related costs 404 427 669 1.10 1.11 2.67

Debt extinguishment costs 151 — — 0.41 — —

Charge for organizational efficiency plan 119 24 162 0.35 0.07 0.43

Charges associated with litigation matters 19 41 19 0.05 0.11 0.08

Debt extinguishment costs 110 151 — 0.32 0.41 —

Integration and transaction-related (benefits) costs 71 404 427 0.21 1.10 1.11

(Benefits) charges associated with litigation matters (21) 19 41 (0.06) 0.05 0.11

Risk corridors recovery — (76) — — (0.21) —

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(Gain) on sale of business — (3,217) — — (8.73) —

Charges (benefits) associated with tax reform — — (2) — — (0.01)

Total special items 279 (2,850) 630 0.82 (7.73) 1.65

Adjusted income from operations $ 6,980 $ 6,795 $ 6,476 $ 20.47 $ 18.45 $ 17.05

(1) Includes the Company's share of certain realized investment results of its joint ventures reported in the Cigna Healthcare segment using the equity method of accounting.

COVID-19 Update

Cigna's commitment to the health, well-being and peace of mind of our employees and the people we serve remains the primary focus as the pandemic continues to impact all aspects of daily life.

Cigna is leveraging its resources, expertise, data and actionable intelligence to assist customers, clients and care providers navigate the evolving dynamics of the pandemic.

The Company continues to encourage COVID-19 vaccinations across all eligible populations to help control the spread of the virus, limit the severity of the disease and save lives.

Cigna has also expanded access to testing, care and supportive resources to help everyone it serves take care of their physical and mental health during this time, and will continue to do so.

For the fourth quarter of 2021, our Cigna Healthcare segment reflected net unfavorable COVID-19 related impacts, although not as significant when compared to those recognized in the same period in 2020.

For the year ended December 31, 2021 compared to 2020, the net unfavorable impacts reflect increased direct costs of COVID-19 testing, treatment and vaccines as well as the significant deferral of care by our customers in 2020.

These impacts were partially offset by the absence of the premium relief programs implemented in 2020.

We continue to optimize purchasing volume across the pharmaceutical supply chain in order to mitigate risk of disruption with prescription drug supply due to ongoing global supply disruptions.

The situation surrounding COVID-19 remains fluid with continued uncertainty and a wide range of potential outcomes.

We continue to actively manage our response and assess impacts to our financial position and operating results, as well as mitigate adverse developments in our business.

There continues to be uncertainty surrounding the pace, duration and extent of the COVID-19 pandemic and its related impacts — including vaccination efforts and new COVID-19 variants (including the delta and omicron variants) — on our results for 2022 and beyond.

We believe that such financial results may continue to be impacted by, among other things, higher medical costs to treat those affected by the virus, vaccine-related costs, test reimbursement costs, lower risk adjustment revenue due to disrupted care impeding appropriate documentation of customer risk profiles in our Medicare Advantage plans, the pace at which costs return as well as the severity of costs for those who had previously deferred care, the potential for future deferral of care, lower customer volumes due to a disrupted employment market, or volatility in the economic markets.

For further information regarding the potential impact of COVID-19 on the Company, see "Risk Factors" contained in Part I, Item 1A of this Form 10-K.

2021 versus 2020

Unless indicated otherwise, the commentary presented below, and in the segment discussions that follow, compare results for the year ended December 31, 2020 with results for the year ended December 31, 2019.

Shareholders’ net income increase was driven by the gain on sale of the Group Disability and Life business, lower amortization charges and higher adjusted income from operations, partially offset by the absence of earnings from transitioning clients.

Adjusted income from operations increased, driven in part by higher earnings in the Evernorth segment reflecting customer growth and increased script volumes, an increase in the International Markets segment results and lower interest costs in Corporate due to a lower level of outstanding debt.

These favorable effects were partially offset by lower earnings in the Group Disability and Other segment reflecting significantly elevated life claims related to the effects of COVID-19.

The commentary presented below, and in the segment discussions that follow, compare results for the year ended December 31, 2021 with results for the year ended December 31, 2020.

Shareholders' net income decreased, reflecting the absence of the gain on sale of the Group Disability and Life business reported in 2020, partially offset by higher adjusted income from operations.

Adjusted income from operations increased, primarily resulting from higher earnings in Evernorth and lower net interest expense.

Improved results in our international businesses held for sale (reported in Other Operations) also contributed to the increase.

These favorable effects were partially offset by lower earnings in Cigna Healthcare and the absence of earnings in 2021 from the sold Group Disability and Life business.

The increase in earnings in the Evernorth segment was primarily attributable to continued contract affordability improvements and business growth (see "Evernorth Segment" section of this MD&A).

Lower earnings in Cigna Healthcare were primarily driven by the unfavorable impacts of COVID-19, partially offset by higher net investment income (see "Cigna Healthcare Segment" section of this MD&A).

Medical customers grew, reflecting a higher customer base in Individual and Medicare Advantage, as well as our Middle Market, Select and International Health market segments, offset by a decline in customers in our National Accounts market segment.

Pharmacy revenues increased, reflecting inflation on branded drugs and higher claim volume, primarily due to our collaboration with Prime Therapeutics.

See the "Evernorth Segment" section of this MD&A for further discussion of Pharmacy revenues.

Premiums were lower, reflecting the impact of the sale of the Group Disability and Life business.

This effect was partially offset by an increase in Cigna Healthcare premiums resulting from customer growth in our insured businesses, higher premium rates due to anticipated underlying medical cost trend and the absence of premium relief programs implemented in the second quarter of 2020 in response to deferred care due to the COVID-19 pandemic.

Fees and other revenues increased, primarily driven by customer growth (see "Evernorth Segment" section of this MD&A).

Net investment income increased due to strong returns on our securities limited partnership investments, partially offset by lower average assets due to the sale of the Group Disability and Life business.

See the "Investment Assets" section of this MD&A for further discussion.

Pharmacy and other service costs increased, reflecting inflation on branded drugs and higher claim volume, primarily due to our collaboration with Prime Therapeutics.

Medical costs and other benefit expenses increased, resulting from higher medical costs in Cigna Healthcare primarily driven by net unfavorable COVID-19 related impacts, underlying medical cost trend and customer growth in our insured business.

These unfavorable effects were substantially offset by the impact of the sale of the Group Disability and Life business.

Selling, general and administrative expenses decreased, primarily reflecting the impact of the sale of the Group Disability and Life business, lower integration and transaction costs and the repeal of the health insurance industry tax.

These favorable effects were partially offset by expense growth in Evernorth and Cigna Healthcare reflecting business growth.

Interest expense and other decreased primarily due to a lower average interest rate and lower levels of average outstanding debt resulting from debt repayments.

Debt extinguishment costs were lower because the debt repaid in 2021 had lower interest rates than the debt repaid in 2020.

Realized investment results improved, primarily due to gains on sales of real estate joint ventures in 2021, favorable market value adjustments on equity securities in 2021 compared with 2020 and lower credit loss reserves on debt securities.

These favorable effects were partially offset by lower gains on sales of debt securities in 2021 compared with 2020.

Income tax expense decreased in 2021, reflecting the absence of taxes recorded in 2020 on the sale of the Group Disability and Life business.

The consolidated effective tax rate decreased, primarily driven by the repeal of the nondeductible health insurance industry tax in 2021 and the absence of incremental tax expense associated with the sale of the Group Disability and Life business in 2020.

Due to the segment changes made in 2021, the following commentary comparing consolidated 2020 results to 2019 is provided as an update to the commentary provided in our 2020 Form 10-K.

Shareholders' net income increased, driven by the gain on sale of the Group Disability and Life business, lower amortization of acquired intangible assets and higher adjusted income from operations, partially offset by the absence of earnings from transitioning clients.

Adjusted income from operations increased, driven in part by higher earnings in the Evernorth segment reflecting customer growth and increased script volumes and lower interest costs in Corporate due to a lower level of outstanding debt.

These favorable effects were partially offset by lower earnings from the sold Group Disability and Life business (reported in Other Operations) primarily reflecting significantly elevated life claims related to the effects of COVID-19.

Medical customers decreased due to declines in the Middle Market and National Accounts market segments and increased disenrollment driven by the impacts of COVID-19.

Those decreases were partially offset by growth in the Select, International and Medicare Advantage segments.

Pharmacy revenues increased, reflecting the transition of U.S.

Medical's customers to Evernorth, higher claims volumes, driven by the Evernorth collaboration with Prime Therapeutics and an increase in pricing, primarily due to inflation on branded drugs.

Those decreases were partially offset by growth in the Select and International Health market segments, as well as Medicare Advantage customers.

Pharmacy revenues increased, reflecting the transition of Cigna Healthcare's customers to Evernorth, higher claims volumes, driven by the Evernorth collaboration with Prime Therapeutics and increased prices, primarily due to inflation on branded drugs.

These factors were substantially offset by the absence of revenues from the transitioning clients and, to a lesser extent, an increase in the generic fill rate.

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These factors were partially offset by the impact of premium relief programs implemented in response to significantly lower than historical utilization as customers deferred care in 2020 due to the COVID-19 pandemic.

Fees and other revenues decreased, primarily reflecting the transition of U.S.

Medical's commercial customers to Evernorth's retail pharmacy network beginning in the third quarter of 2019 (see Note 3(K) to the Consolidated Financial Statements for further information).

Net investment income decrease was driven by lower yields, including lower income from partnership investments due to current economic conditions.

Fees and other revenues decreased, primarily reflecting the transition of Cigna Healthcare's commercial customers to Evernorth's retail pharmacy network beginning in the third quarter of 2019 (see Note 3(J) to the Consolidated Financial Statements for further information).

Net investment income decreased, driven by lower yields, including lower income from partnership investments due to current economic conditions.

These effects were partially offset by higher average assets.

See the "Investment Assets" section of this MD&A for further discussion.

Pharmacy and other service costs increased, reflecting the transition of U.S.

Medical's customers to Evernorth, higher claims volumes, driven by the Evernorth collaboration with Prime Therapeutics and an increase in pricing, primarily due to inflation on branded drugs.

These factors were substantially offset by the impact of the absence of the transitioning clients and, to a lesser extent, effective management of supply chain and the favorable impact of the mix of claims.

Medical costs and other benefit expenses increased, reflecting both customer growth and direct costs associated with COVID-19, partially offset by care deferrals in insured products in U.S.

Medical and higher life claims in Group Disability and Other due to the effects of the COVID-19 pandemic.

Selling, general and administrative expenses were essentially flat, primarily reflecting lower charges in 2020 for the organizational efficiency plan and the risk corridors claim recovery recognized in the third quarter of 2020 (see the "Risk Mitigation Programs - Individual ACA Business" section of this MD&A and Note 21 to the Consolidated Financial Statements for further discussion), offset by the return of the health insurance industry tax.

Pharmacy and other service costs increased, reflecting the transition of Cigna Healthcare's customers to Evernorth, higher claims volumes, driven by the Evernorth collaboration with Prime Therapeutics and an increase in pricing, primarily due to inflation on branded drugs.

These factors were substantially offset by the impact of the absence of the transitioning clients and, to a lesser extent, continued contract affordability improvements and the favorable impact of the mix of claims.

Medical costs and other benefit expenses increased, reflecting both customer growth and direct costs associated with COVID-19, partially offset by care deferrals in insured products in Cigna Healthcare and higher life claims in the sold Group Disability and Life business due to the effects of the COVID-19 pandemic.

Selling, general and administrative expenses were essentially flat, primarily reflecting lower charges in 2020 for the 2019 organizational efficiency plan and resolving our Affordable Care Act risk corridors claim against the United States Federal Government in the third quarter of 2020.

These decreases were offset by the return of the health insurance industry tax.

Amortization of acquired intangible assets decreased, primarily reflecting lower amortization of customer-related intangibles associated with the transitioning clients.

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Key Transactions and Business Developments

Sale of Group Disability and Life Business

As discussed in Note 5 to the Consolidated Financial Statements, Cigna sold the U.S.

Group Disability and Life business to New York Life Insurance Company for $6.2 billion on December 31, 2020.

The “Liquidity and Capital Resources” section of this MD&A provides discussion of the use of proceeds from this divestiture.

Organizational Efficiency Plan

Consistent with our commitment to affordability for our customers and clients, during the fourth quarter of 2019 the Company committed to a plan to increase our organizational alignment and operational efficiency and reduce costs.

As a result, we recognized a charge in Selling, general and administrative expenses of $207 million, pre-tax ($162 million, after-tax) in the fourth quarter of 2019 and an additional charge of $31 million pre-tax ($24 million, after-tax) in the first quarter of 2020.

As discussed in Note 15 to the Consolidated Financial Statements, during the fourth quarter of 2021, the Company approved a strategic plan to drive operational efficiencies.

We believe this plan, coupled with the previously announced divestiture of the international life, accident and supplemental health benefits businesses (described below), will further leverage the Company's ongoing growth to drive operational efficiency through enhancements to organizational structure and increased use of automation and shared services.

In connection with these plans, Cigna has updated its reporting segments to align with the new business reporting structure and recognized a charge in the fourth quarter of 2021 in the amount of $168 million, pre-tax ($119 million, after-tax).

We expect to realize annualized after-tax savings of approximately $180 million.

A substantial portion of the savings was realized in 2020.

A substantial portion of the savings is expected to be realized in 2022.

Although a substantial portion of the actions associated with these strategic steps have been reflected in the charge recognized in the fourth quarter of 2021, additional amounts are expected to be recorded in the second quarter of 2022 as we finalize our plans following the completion of the divestiture.

See Note 15 for further information regarding our organizational efficiency charge.

Agreement to Sell International Life, Accident and Supplemental Benefits Businesses

We entered into a definitive agreement in October 2021 to sell our life, accident and supplemental benefits businesses in seven countries to Chubb INA Holdings, Inc.

("Chubb") for $5.75 billion cash (the "Chubb Transaction").

Subject to applicable regulatory approvals and customary closing conditions, we expect to complete the sale of our life, accident and supplemental benefits businesses in Hong Kong, Indonesia, New Zealand, South Korea, Taiwan, Thailand and our interest in a joint venture in Turkey in the second quarter of 2022.

The "Liquidity and Capital Resources" section of this MD&A provides discussion of the expected impact of this transaction to liquidity.

Purchase of MDLIVE

As discussed in Note 4 to the Consolidated Financial Statements, on April 19, 2021 Cigna's Evernorth segment completed the acquisition of MDLIVE, Inc.

("MDLIVE"), a 24/7 virtual care platform (the "MDLIVE Acquisition").

The acquisition of MDLIVE will enable Evernorth to continue expanding access to virtual care and delivering a more affordable, convenient and connected care experience for consumers.

The "Liquidity and Capital Resources" section of this MD&A provides discussion of the impact of the MDLIVE Acquisition on liquidity.

Sale of Group Disability and Life Business

As discussed in Note 4 to the Consolidated Financial Statements, Cigna sold its U.S.

Group Disability and Life business to New York Life Insurance Company for $6.2 billion on December 31, 2020 (the "New York Life Divestiture").

The "Liquidity and Capital Resources" section of this MD&A provides discussion of the use of proceeds from the New York Life Divestiture.

Merger with Express Scripts

As discussed in more detail in our 2019 Form 10-K, Cigna acquired Express Scripts on December 20, 2018 in a cash and stock transaction valued at $52.8 billion.

Cigna acquired Express Scripts on December 20, 2018.

Costs related to this transaction are reported in "integration and transaction-related costs" as a special item and excluded from adjusted income from operations because they are not indicative of future underlying performance of the business.

The integration of this acquisition has been completed.

On January 30, 2019, Anthem, a former client, exercised its early termination right and terminated its pharmacy benefit management services agreement with us, effective March 1, 2019.

On January 30, 2019, Anthem, Inc.

("Anthem"), a former client of Express Scripts, exercised its early termination right and terminated its pharmacy benefit management services agreement with us, effective March 1, 2019.

There was a twelve-month transition period that ended March 1, 2020.

We excluded the results of Express Scripts’ contract with Anthem (and also Coventry) from our non-GAAP reporting metrics adjusted revenues and adjusted income from operations for 2019 and refer to these clients as transitioning clients.

We excluded the results of Express Scripts' contract with Anthem (and also Coventry Health Care, Inc.) from our non-GAAP reporting metrics adjusted revenues and adjusted income from operations for 2019 and refer to these clients as transitioning clients.

As of December 31, 2019, the transition was substantially complete;

therefore, beginning in 2020, we no longer exclude results of transitioning clients from our reported adjusted revenues and adjusted income from operations.

Industry Developments and Other Matters

The "Business - Regulation" section of this Form 10-K provides a detailed description of The Patient Protection and Affordable Care Act (“ACA”) provisions and other legislative initiatives that impact our businesses, including regulations issued by the Centers for Medicare & Medicaid Services (“CMS”) and the Departments of the Treasury and Health and Human Services.

Our businesses continue to operate in a dynamic environment, and the laws and regulations applicable to us, including the ACA, continue to be subject to legislative, regulatory and judicial challenges.

The following table provides information on the expected impact of these items and other matters:

Medicare Advantage ("MA") Medicare Star Quality Ratings ("Star Ratings") :

CMS uses a Star Rating system to measure how well MA plans perform and scores performance in several categories, including quality of care and customer service.

Additionally, for the year ended December 31, 2020, we recorded an adjustment related to this contract that was excluded from adjusted revenues and adjusted income from operations.

Medicare Star Quality Ratings ("Star Ratings")

The Centers for Medicare & Medicaid Services ("CMS") uses a Star Rating system to measure how well Medicare Advantage ("MA") plans perform, scoring how well plans perform in several categories, including quality of care and customer service.

Star Ratings range from one to five stars.

CMS recognizes plans with Star Ratings of four stars or greater with quality bonus payments and the ability to offer enhanced benefits.

Approximately 77% of our MA customers were in four star or greater plans for bonus payments received in 2020 and 87% for bonus payments to be received in 2021.

In October 2020, CMS announced the Star Ratings for bonus payments to be received in 2022.

We expect the percentage of our MA customers in four star or greater plans will increase to 88% for bonus payments to be received in 2022.

Final MA reimbursement rates for 2021 were published by CMS in April 2020, and final rates for 2022 were published by CMS in January 2021.

Approximately 87% of our MA customers were in four star or greater plans for bonus payments received in 2021 and approximately 89% were in four star or greater plans for bonus payments to be received in 2022;

we expect this percentage to decrease to 86% for bonus payments to be received in 2023 based upon the mix of new and existing MA plans.

Medicare Advantage ("MA") Rates

On January 15, 2021, CMS published the Calendar Year 2022 Medicare Advantage and Part D Rate Announcement (the "2022 Final Notice"), finalizing reimbursement rates for 2022.

On February 2, 2022, CMS released the Calendar Year 2023 Advance Notice of Methodological Changes for Medicare Advantage Capitation Rates and Part C and Part D Payment Policies (the "Advance Notice").

We do not expect the new rates to have a material impact on our consolidated results of operations in 2022 or 2023.

Risk Adjustment :

As discussed in the “Regulation” and “Risk Factors” sections of this Form 10-K, our MA business is subject to reviews, including risk adjustment data validation (“RADV”) audits by CMS and the Office of the Inspector General (“OIG”).

We expect that CMS, OIG and other federal agencies will continue to closely scrutinize components of the Medicare program.

The “Regulation” section of this Form 10-K also discusses a proposed rule issued by CMS in 2018 for RADV audits of contract year 2011 and all subsequent years that included, among other things, extrapolation of the error rate related to RADV audit findings without applying the adjustment for underlying fee-for-service data errors as currently contemplated by CMS’ RADV audit methodology.

RADV audits for our contract years 2011 through 2015 are currently in process.

CMS has announced its intent to use third-party auditors to audit all Medicare Advantage contracts by either a comprehensive or a targeted RADV review for each contract year.

If the proposed rule is adopted in its current form, it could result in some combination of degraded plan benefits, higher monthly premiums and reduced choice for the population served by all MA insurers.

The Company, along with other MA organizations and additional interested parties, submitted comments to CMS on the proposed rule as part of the notice-and-comment rulemaking process.

The comment period concluded on August 28, 2019 and CMS is expected to act by November 2021.

If CMS adopts the rule as proposed, there could be a material impact on the Company’s future results of operations, though we expect the rule would be subject to legal challenges.

In addition, the Company is subject to OIG RADV audits that are in process.

Also, as described in Note 21 to the Consolidated Financial Statements, the U.S.

Department of Justice is currently conducting an industry-wide investigation of risk adjustment data submission practices and business processes, which in the case of certain other MA organizations has resulted in litigation .

Affordable Care Act

Cost-Sharing Reduction Subsidies :

The ACA provides for cost-sharing reductions that offset the amount that qualifying customers pay for deductibles, copays and coinsurance.

The federal government stopped funding insurers for the cost-sharing reduction ("CSR”) subsidies in 2017.

Certain insurers have sued the federal government for failure to pay cost-sharing reduction subsidies and the matter remains unresolved.

In the first set of consolidated appeals, the Court of Appeals for the Federal Circuit issued a decision on August 14, 2020, finding that (i) the CSR reimbursement provision of the ACA imposes an obligation on the government to pay, but (ii) the insurers' damages must be reduced by the amount of additional premium tax credit payments that each insurer received as a result of the government’s termination of CSR payments.

On September 28 and October 2, 2020, the insurers filed petitions for rehearing en banc in the Federal Circuit.

The court denied those petitions on November 10 and December 16, 2020, respectively.

On February 19, 2021 two insurers filed a petition seeking Supreme Court review.

As described in Note 21 to the Consolidated Financial Statements, we filed a lawsuit in May 2020 against the federal government seeking payment of these subsidies.

Our case is stayed until either the Federal Circuit’s judgments in the CSR appeals become final and non-appealable or the Supreme Court resolves any petition for writ of certiorari.

Our premium rates for the 2018, 2019 and 2020 plan years reflected a lack of government funding for cost-sharing reduction subsidies.

ACA Litigation :

As described in the “Business - Regulation” section of this Form 10-K, a federal district court ruled that the “individual mandate” in the ACA is unconstitutional and that the entire law must be struck down.

On appeal, the Court of Appeals for the Fifth Circuit agreed that the “individual mandate” is unconstitutional but ordered the district court to reexamine whether the other provisions of the ACA can remain in effect, thereby leaving in doubt whether the entire ACA is unconstitutional until there is a final judicial determination on appeal.

The California-led states and the U.S.

House of Representatives filed petitions seeking to appeal the Fifth Circuit's ruling to the U.S.

Supreme Court.

On March 2, 2020, the Supreme Court agreed to hear the appeals.

The case was argued before the Supreme Court on November 10, 2020, and a decision is expected by the end of June 2021.

Risk Mitigation Programs – Individual ACA Business

Risk Corridors.

In 2016, we recorded an allowance for the balance of our ACA risk corridors receivable based on court decisions and the large program deficit.

On April 27, 2020, the U.S.

Supreme Court ruled that insurers are entitled to the full amount due under the risk corridors program.

The Supreme Court remanded the cases before it to the lower courts for further proceedings consistent with its opinion.

We filed a lawsuit in May 2020 seeking payment of these funds.

We received $120 million in payments in September 2020, which resolved our risk corridors claim.

Risk Adjustment.

At the end of each program year the risk adjustment balances are subject to audit by CMS through the RADV program.

RADV audits for the 2017 and 2018 benefit years have been completed, subject to the error rates appeal period.

Final settlement for the 2017 and 2018 benefit years is expected in 2021 and 2022, respectively.

Based on the information currently available, we have adjusted our risk adjustment balances to reflect our estimate of expected outcome as of December 31, 2020 and December 31, 2019.

(In millions) December 31,

2020 December 31,

Risk Adjustment

Receivables (1)

Total risk adjustment balance $ (73) $ (166)

(1) Receivables, net of allowances, are reported in Accounts receivable, net in the Consolidated Balance Sheets.

(2) Payables are reported in Accrued expenses and other liabilities (current) in the Consolidated Balance Sheets.

Risk adjustment program charges of $(26) million pre-tax were fully offset by RADV adjustment favorability of $26 million pre-tax for 2020, compared with net charges of $162 million pre-tax ($126 million after-tax) in 2019 and $147 million pre-tax ($116 million after-tax) in 2018.

CMS will accept comments on the Advance Notice through March 4, 2022, before publishing the final rate announcement by April 4, 2022.

The Advance Notice is subject to the required notice and comment period, and we cannot predict when or to what extent CMS will adopt the proposals in the Advance Notice.

LIQUIDITY AND CAPITAL RESOURCES

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the subsidiary level and the parent company level.

Liquidity requirements at the subsidiary level generally consist of:

Cash requirements at the subsidiary level generally consist of:

• pharmacy, medical costs and other benefit payments;

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• borrowing from affiliates, subject to applicable regulatory limits.

Liquidity requirements at the parent company level generally consist of:

Cash requirements at the parent company level generally consist of:

• debt service;

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• borrowing from its subsidiaries, subject to applicable regulatory limits.

Dividends from our insurance, Health Maintenance Organization (“HMO”) and foreign subsidiaries are subject to regulatory restrictions.

See Note 19 to the Consolidated Financial Statements for additional information regarding these restrictions.

Most of Evernorth's subsidiaries are not subject to regulatory restrictions regarding dividends and therefore provide significant financial flexibility to Cigna.

Dividends from our insurance, Health Maintenance Organization ("HMO") and certain foreign subsidiaries are subject to regulatory restrictions.

See Note 20 to the Consolidated Financial Statements in this Form 10-K for additional information regarding these restrictions.

Most of the Evernorth segment operations are not subject to regulatory restrictions regarding dividends and therefore provide significant financial flexibility to Cigna.

Cash flows for the years ended December 31 were as follows:

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Net cash provided by operating activities $ 7,191 $ 10,350 $ 9,485

Net cash provided by (used in) investing activities:

Net cash (used in) provided by investing activities:

Cash proceeds from sale of U.S.

Group Disability and Life business, net of cash sold (61) 5,592 —

Cash used to acquire Express Scripts, net of cash acquired — — (24,062)

Other acquisitions (1,833) (139) (153)

Net investment sales (purchases) (660) (1,406) 480

Purchases of property and equipment and other (1,071) (1,061) (540)

Purchases of property and equipment, net (1,154) (1,094) (1,050)

Other, net 97 23 (11)

Net investing activities (3,611) 2,976 (734)

Net cash (used in) provided by financing activities:

Net cash (used in) financing activities:

Debt (repayments) issuances 521 (4,736) (5,175)

Stock repurchase (7,742) (4,042) (1,987)

Dividend payments (1,341) (15) (15)

Other, net 350 260 (10)

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Change in cash, cash equivalents and restricted cash $ (4,697) $ 4,834 $ 1,556

The following discussion explains variances in the various categories of cash flows for the year ended December 31, 2020 compared with the same period in 2019.

The following discussion explains variances in the various categories of cash flows for the year ended December 31, 2021 compared with the year ended December 31, 2020.

For comparisons of liquidity and capital resources for the year ended December 31, 2020 compared with the year ended December 31, 2019, please refer to the previously filed MD&A included in Part II, Item 7 of our Form 10-K for the year ended December 31, 2020.

Operating activities

Cash flows from operating activities consist principally of cash receipts and disbursements for pharmacy revenues and costs, premiums, fees, investment income, taxes, benefit costs and other expenses.

Cash flows from operating activities increased, primarily driven by higher pharmacy and services costs payables due to business growth, offset by increases in accounts receivable due to business growth, higher inventory purchases and the resumption of the health insurance industry tax.

Cash provided by operating activities decreased, driven by increases in accounts receivable due to higher pharmacy claim volume and business growth and a delay in the annual CMS Part D settlement, the timing of pharmacy and other service cost payables as well as higher tax payments largely related to the sale of the Group Disability and Life business.

These decreases were partially offset by the absence of the health insurance industry tax payments.

Investing and Financing activities

Cash flows from investing activities increased, primarily due to the net proceeds from the sale of the Group Disability and Life business, partially offset by higher net investment purchases.

Cash used in finance activities increased, primarily due to stock repurchases and debt repayments, partially offset by higher debt issuance.

We maintain a share repurchase program authorized by our Board of Directors.

Under this program, we may repurchase shares from time to time, depending on market conditions and alternate uses of capital.

The timing and actual number of shares repurchased will depend on a variety of factors including price, general business and market conditions and alternate uses of capital.

The share repurchase program may be effected through open market purchases in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, including through Rule 10b5-1 trading plans or privately negotiated transactions.

The program may be suspended or discontinued at any time.

For the year ended December 31, 2020, we repurchased 21.9 million shares for approximately $4.1 billion.

From January 1, 2021 through February 24, 2021, we repurchased 8.1 million shares for approximately $1.7 billion.

Share repurchase authority was $2.1 billion as of February 24, 2021.

Cash used in investing activities increased, primarily due to the acquisition of MDLIVE in 2021, the absence of the net proceeds from the sale of the Group Disability and Life business in 2020, partially offset by lower net investment activities.

Cash used in financing activities decreased primarily due to lower debt repayments, offset by higher stock repurchases including shares purchased pursuant to the ASR agreements (described below) and an increase in dividends paid.

Capital Resources

Our capital resources consist primarily of cash, cash equivalents and investments maintained at regulated subsidiaries required to underwrite insurance risks, cash flows from operating activities, our commercial paper program, credit agreements and the issuance of long-term debt and equity securities.

Our businesses generate significant cash flow from operations, some of which is subject to regulatory restrictions relative to the amount and timing of dividend payments to parent.

Our businesses generate significant cash flow from operations, some of which is subject to regulatory restrictions relative to the amount and timing of dividend payments to the parent company.

Dividends from U.S.

regulated subsidiaries were $2.3 billion in 2020 and 2019.

Nonregulated subsidiaries also generate significant cash flow from operating activities, which is typically available immediately to parent for general corporate purposes.

regulated subsidiaries were $2.8 billion and $2.3 billion for the years ended December 31, 2021 and 2020, respectively.

Non-regulated subsidiaries also generate significant cash flow from operating activities, which is typically available immediately to the parent company for general corporate purposes.

We prioritize our use of capital resources to:

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• return capital to shareholders through share repurchases.

At December 31, 2020, our debt-to-capitalization ratio was 39.5%, a decline from 45.2% at December 31, 2019.

In connection with the sale of the Group Disability and Life business that closed on December 31, 2020, we deployed approximately $3.0 billion to debt repayment by:

(i) repaying in full our $1.4 billion 364-Day Term Loan Credit Agreement entered into on April 1, 2020, on December 31, 2020;

(ii) redeeming in full the $1.0 billion aggregate principal amount of Cigna’s Senior Floating Rate Notes due 2021 on January 15, 2021 at a redemption price calculated in accordance with the terms and conditions of the indenture governing the Notes;

and (iii) repaying certain of our outstanding commercial paper balances in January 2021.

In 2018, Cigna entered into a $3.25 billion five-year revolving credit agreement and a $3.0 billion term loan credit agreement in financing the Express Scripts acquisition.

The term loan credit agreement was repaid in full and terminated in the fourth quarter of 2019.

In 2019, Cigna entered into an additional $1.0 billion 364-day revolving credit agreement that expired in October 2020, at which point we replaced the revolving credit agreement with a new $1.0 billion 364-day revolving credit agreement which will expire in October 2021.

Our revolving credit agreements provide us the ability to borrow amounts for general corporate purposes, including for purpose of providing liquidity support if necessary under our commercial paper program discussed below.

As of December 31, 2020, there were no outstanding balances under either of the revolving credit agreements.

Cigna also maintains a commercial paper program and may issue short-term, unsecured commercial paper notes privately placed on a discount basis through certain broker dealers at any time not to exceed $4.25 billion.

Funds Available

Commercial Paper Program .

Cigna maintains a commercial paper program and may issue short-term, unsecured commercial paper notes privately placed on a discount basis through certain broker dealers at any time not to exceed an aggregate amount of $5.0 billion.

The net proceeds of issuances have been and are expected to be used for general corporate purposes.

The commercial paper program had approximately $1.0 billion outstanding at December 31, 2020 at an average interest rate of 0.2%.

Revolving Credit Agreements.

Our revolving credit agreements provide us with the ability to borrow amounts for general corporate purposes, including for the purpose of providing liquidity support if necessary under our commercial paper program discussed above.

Cigna's revolving credit agreements include:

a $3.0 billion five-year revolving credit and letter of credit agreement that expires in April 2026;

a $1.0 billion three-year revolving credit agreement that expires in April 2024;

and a $1.0 billion 364-day revolving credit agreement that expires in April 2022.

As of December 31, 2021, we had $5.0 billion of undrawn committed capacity under our revolving credit agreements (these amounts are available for general corporate purposes, including providing liquidity support for our commercial paper program), $3.0 billion of remaining capacity under our commercial paper program and $5.5 billion in cash and short-term investments, approximately $1.7 billion of which was held by the parent company or certain non-regulated subsidiaries.

See Note 7 to the Consolidated Financial Statements for further information on our credit agreements and commercial paper program.

Our capital management strategy to support the liquidity and regulatory capital requirements of our foreign operations and certain international growth initiatives is to retain overseas a significant portion of the earnings generated by our foreign operations.

This strategy does not materially limit our ability to meet our liquidity and capital needs in the United States.

Liquidity and Capital Resources Outlook

We maintain sufficient liquidity to meet our cash needs through our cash and cash equivalents balances, cash flows from operations, commercial paper program, credit agreements and the issuance of long-term debt and equity securities.

As of December 31, 2020, we had $4.25 billion of undrawn committed capacity under our revolving credit agreements (which amounts are available for general corporate purposes, including providing liquidity support for our commercial paper program), $3.2 billion of remaining capacity under our commercial paper program and $10.5 billion in cash and short-term investments, approximately $5.2 billion of which was held by the parent company or certain nonregulated subsidiaries.

At December 31, 2021, our debt-to-capitalization ratio was 41.7%, an increase from 39.5% at December 31, 2020, reflecting higher commercial paper balances and the impact of share repurchase on shareholders' equity.

We actively monitor our debt obligations and engage in issuance or redemption activities as needed in accordance with our capital management strategy.

A description of our outstanding debt can be found in Note 7 to the Consolidated Financial Statements.

On January 6, 2021, Cigna initiated a quarterly cash dividend and declared the first quarterly cash dividend of $1.00 per share of Cigna common stock to be paid on March 25, 2021 to shareholders of record as of March 10, 2021.

Subsidiary Borrowings.

In addition to the sources of liquidity discussed above, the parent company can borrow an additional $2.0 billion from its subsidiaries without further approvals as of December 31, 2021.

Use of capital resources

Capital Expenditures .

Capital expenditures for property, equipment and computer software were $1.2 billion in 2021 compared to $1.1 billion in 2020.

We expect to continue to invest in technology that we believe will drive future growth.

Anticipated capital expenditures will be funded primarily from operating cash flow.

For 2021, Cigna declared and paid quarterly cash dividends of $1.00 per share of Cigna common stock.

See Note 8 to the Consolidated Financial Statements for further information on our dividend payments.

On February 3, 2022, the Board of Directors declared and increased the quarterly cash dividend to $1.12 per share of Cigna common stock to be paid on March 24, 2022 to shareholders of record on March 9, 2022.

Cigna currently intends to pay regular quarterly dividends, with future declarations subject to approval by its Board of Directors and the Board's determination that the declaration of dividends remains in the best interests of Cigna and its shareholders.

The decision of whether to pay future dividends and the amount of any such dividends will be based on the Company's financial position, results of operations, cash flows, capital requirements, the requirements of applicable law and any other factors the Board of Directors may deem relevant.

As of December 31, 2020, our unfunded pension liability was $977 million, an increase of $104 million from December 31, 2019, primarily attributable to a decrease in discount rates of approximately 80 basis points, partially offset by investment asset returns.

In 2020, we made an immaterial pension contribution as required under the Pension Protection Act of 2006.

We expect the required contributions for 2021 to be immaterial.

Acquisition .

In April 2021, Cigna completed its acquisition of MDLIVE, which was funded with cash on hand and commercial paper borrowings.

See Note 4 to the Consolidated Financial Statements for additional information.

Share repurchases .

We maintain a share repurchase program authorized by our Board of Directors, under which we may repurchase shares of our common stock from time to time.

The timing and actual number of shares repurchased will depend on a variety of factors including price, general business and market conditions and alternate uses of capital.

The program may be suspended or discontinued at any time.

On August 23, 2021, as part of our existing share repurchase program, we entered into accelerated share repurchase agreements to repurchase $2.0 billion of common stock.

The total number of shares repurchased under the ASR agreements was 9.5 million.

See Note 8 to the Consolidated Financial Statements for additional information.

For the year ended December 31, 2021, we repurchased 35.2 million shares for approximately $7.7 billion including the $2.0 billion paid under the ASR agreements.

From January 1, 2022 through February 23, 2022, we repurchased 5.0 million shares for approximately $1.2 billion.

Share repurchase authority was $6.0 billion as of February 23, 2022.

Pension liability.

As of December 31, 2021, our unfunded pension liability was $377 million, a decrease of $600 million from December 31, 2020, primarily attributable to strong investment asset returns and an increase in discount rates of 33 basis points.

In 2021, we made immaterial contributions to the qualified pension plans as required under the Pension Protection Act of 2006 and we expect the required contributions for 2022 to be immaterial.

See Note 16 to the Consolidated Financial Statements for additional information.

Group Disability and Life Sale .

In connection with the sale of this business that closed on December 31, 2020, we deployed approximately $3.0 billion to debt repayment by:

(i) repaying in full our $1.4 billion 364-Day Term Loan Credit Agreement entered into on April 1, 2020, on December 31, 2020;

(ii) redeeming in full the $1.0 billion aggregate principal amount of Cigna's Senior Floating Rate Notes due 2021 on January 15, 2021 at a redemption price calculated in accordance with the terms and conditions of the indenture governing the Notes;

and (iii) repaying certain balances of our outstanding commercial paper in January 2021.

Sale of life, accident and supplemental benefits businesses in seven countries.

Cigna entered into a definitive agreement in October 2021 to sell its life, accident and supplemental benefits businesses in seven countries to Chubb for $5.75 billion cash.

Cigna estimates it will receive approximately $5.4 billion of net after-tax proceeds from this transaction and expects to utilize the after-tax proceeds from the transaction primarily for share repurchases.

Risks to our liquidity and capital resources outlook include cash projections that may not be realized and the demand for funds could exceed available cash if our ongoing businesses experience unexpected shortfalls in earnings or we experience material adverse effects from one or more risks or uncertainties described more fully in the "Risk Factors" section of this Form 10-K.

Though we believe we have adequate sources of liquidity, significant disruption or volatility in the capital and credit markets could affect our ability to access those markets for additional borrowings or increase costs.

In addition to the sources of liquidity discussed above, the parent company can borrow an additional $1.7 billion from its subsidiaries without further approvals as of December 31, 2020.

Guarantees and Contractual Obligations

We are contingently liable for various contractual obligations entered into in the ordinary course of business.

"Liquidity and Capital Resources" section of this MD&A for additional information on how we manage our liquidity requirements related to these obligations.

We are contingently liable for various contractual obligations and financial and other guarantees entered into in the ordinary course of business.

See Note 22 to the Consolidated Financial Statements for discussion of various guarantees.

(In millions, on an undiscounted basis) Total 2021 2022 to 2023 2024 to 2025 Thereafter

On balance sheet :

• Insurance liabilities

Contractholder deposit funds $ 5,430 $ 282 $ 502 $ 462 $ 4,184

Future policy benefits 12,339 338 776 900 10,325

Health Care Medical claims payable 3,041 3,041

Unpaid claims and claim expenses 1,195 1,141 11 9 34

Long-term debt (1)

48,029 3,595 8,048 6,062 30,324

Other noncurrent liabilities 623 156 104 99 264

Operating leases 705 150 288 146 121

Off-Balance Sheet

Purchase Obligations 3,197 1,399 1,283 493 22

Total $ 74,559 $ 10,102 $ 11,012 $ 8,171 $ 45,274

(1) Amounts include scheduled interest payments and current maturities of long-term debt.

Finance leases are included in long-term debt and primarily represent obligations for information technology network storage, servers and equipment.

See Note 18 to the Consolidated Financial Statements for information regarding finance leases.

See Note 7 to the Consolidated Financial Statements for information regarding our long-term debt.

On balance sheet :

• Insurance liabilities.

Excluded from the table above are $4 billion of insurance liabilities ($3 billion in contractholder deposit funds;

$1 billion in future policy benefits) associated with the sold retirement benefits, individual life insurance and annuity businesses, reinsured workers’ compensation, as well as the group life and personal accident businesses as their related net cash flows are not expected to impact our cash flows.

Excluding these amounts, the sum of the obligations presented above exceeds the corresponding insurance and contractholder liabilities of $17 billion recorded on the balance sheet.

◦ Insurance liabilities inclusive of the businesses held for sale are $21.5 billion, which include contractholder deposit funds, future policy benefits and unpaid claims and claim expenses.

◦ Of the total obligation amount, $4.3 billion of insurance liabilities are associated with the sold retirement benefits, individual life insurance and annuity businesses, as well as the group life and personal accident businesses as their related net cash flows are not expected to impact our cash flows.

◦ The $22.3 billion of total obligations exceeds the corresponding insurance and contractholder liabilities of $17.3 billion recorded on the balance sheet.

This is because some of the recorded insurance liabilities reflect discounting for interest and the recorded contractholder liabilities exclude future interest crediting, charges and fees.

The timing and amount of actual future cash flows may differ from those presented above.

◦ Contractholder deposit funds:

see Note 9 to the Consolidated Financial Statements for our accounting policy for this liability.

Expected future cash flows presented above also include estimated future interest crediting on current fund balances based on current investment yields less the estimated cost of insurance charges and mortality and administrative fees for universal life policies.

◦ Future policy benefits and unpaid claims and claim expenses:

see Note 9 to the Consolidated Financial Statements for our accounting policies for these liabilities.

Expected future cash flows for these liabilities presented in the table above are undiscounted.

The expected future cash flows for guaranteed minimum death benefit (“GMDB”) reported in future policy benefits do not consider any of the related reinsurance arrangements.

• Long-term debt includes scheduled interest payments and current maturities of long-term debt.

See Note 7 to the Consolidated Financial Statements for information regarding long-term debt.

The timing and amount of actual future cash flows may differ from the projected amount disclosed.

◦ We expect $5.2 billion of insurance liabilities to be paid within the next twelve months beginning January 1, 2022.

◦ See Note 9 to the Consolidated Financial Statements for information regarding insurance liabilities.

• Long-term debt

◦ Total scheduled payments on long-term debt are $48.2 billion, which include scheduled interest payments and maturities of long-term debt.

◦ We expect $1.7 billion of long-term debt payments, which include scheduled interest payments and current maturities of long-term debt to be paid within the next twelve months beginning January 1, 2022.

◦ Finance leases are included in long-term debt and primarily represent obligations for information technology network storage, servers and equipment.

See Note 19 to the Consolidated Financial Statements for information regarding finance leases.

• Other noncurrent liabilities include estimated payments for guaranteed minimum income benefit (“GMIB”) contracts (without considering any related reinsurance arrangements), pension, other postretirement and postemployment benefit obligations, supplemental and deferred compensation plans, interest rate and foreign currency swap contracts and reinsurance liabilities.

Estimated payments of $61 million for deferred compensation, non-qualified and international pension plans and other postretirement and postemployment benefit plans are expected to be paid in less than one year and are included in the table above.

We expect to make immaterial contributions to the qualified domestic pension plans during 2021 and they are reflected in the above table.

We expect to make payments subsequent to 2021 for these obligations;

however, subsequent payments have been excluded from the table as their timing is based on plan assumptions that may materially differ from actual activities.

◦ See Note 7 to the Consolidated Financial Statements for information regarding principal maturities of long-term debt.

• Other noncurrent liabilities

◦ These include approximately $704 million of estimated payments for guaranteed minimum income benefit ("GMIB") contracts (without considering any related reinsurance arrangements), other postretirement and postemployment benefit obligations, pension, supplemental and deferred compensation plans, interest rate and foreign currency swap contracts and reinsurance liabilities.

◦ We expect $121 million of other noncurrent liabilities to be paid within the next twelve months beginning January 1, 2022.

◦ See Note 16 to the Consolidated Financial Statements for further information on pension obligations.

• Operating leases see Note 18 to the Consolidated Financial Statements for additional information.

The table above excludes the liabilities for uncertain tax positions because we cannot reasonably estimate the timing of such future payments.

• Operating leases

◦ These include operating lease payments of $641 million.

◦ We expect $152 million of operating lease payments to be due within the next twelve months beginning January 1, 2022.

◦ See Note 19 to the Consolidated Financial Statements for additional information.

• Uncertain Tax Positions

◦ In the event we are unable to sustain all of our $1.2 billion of uncertain tax positions, it could result in future tax payments of approximately $900 million.

We cannot reasonably estimate the timing of such future payments.

◦ See Note 21 to the Consolidated Financial Statements for additional information on uncertain tax positions.

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• Purchase obligations

As of December 31, 2020, purchase obligations consisted of estimated payments required under contractual arrangements for future services and investment commitments and they are included in the table below.

(In millions)

Debt securities $ 149

Commercial mortgage loans 10

Limited liability entities (other long-term investments) (1)

Total investment commitments 2,484

Future service commitments 713

Total purchase obligations $ 3,197

(1) See Note 11 to the Consolidated Financial Statements for additional information.

Our estimated future service commitments primarily represent contracts for certain outsourced business processes and information technology maintenance and support.

We generally have the ability to terminate these agreements, but do not anticipate doing so at this time.

◦ These include agreements to purchase goods or services that are enforceable and legally binding.

Purchase obligations exclude contracts that are cancellable without penalty and those that do not contractually require minimum levels of goods or services to be purchased.

We are contingently liable for various financial and other guarantees provided in the ordinary course of business.

See Note 21 to the Consolidated Financial Statements for additional information on guarantees.

◦ As of December 31, 2021, purchase obligations consisted of a total of $4.3 billion of estimated payments required under contractual arrangements.

This includes:

▪ $3.4 billion of investment commitments, primarily comprised of other-long-term investments and equity securities.

▪ $932 million of future service commitments, primarily comprised of contracts for certain outsourced businesses process and information technology maintenance and support.

◦ We expect $2.0 billion of purchase obligations to be paid within the next twelve months beginning January 1, 2022, of which $1.6 billion relates to investment commitments and $368 million relates to future service commitments.

◦ See Note 11 of the Consolidated Financial Statements for additional information on investment commitments.

CRITICAL ACCOUNTING ESTIMATES

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• changes in the estimate or different estimates that could have been selected could have a material effect on our consolidated results of operations or financial condition.

Management has discussed how critical accounting estimates are developed and selected with the Audit Committee of our Board of Directors and the Audit Committee has reviewed the disclosures presented below.

We regularly evaluate items that may impact critical accounting estimates.

As discussed in the executive overview of this MD&A, the COVID-19 pandemic has pervasively impacted the economy, financial markets and the global health care delivery systems.

If the impact of the COVID-19 pandemic beyond 2020 is worse than management's current projections, these adverse effects to our business could impact the estimated fair value of our reporting units.

In addition to the estimates presented in the following tables, there are other accounting estimates used in preparing our Consolidated Financial Statements, including estimates of liabilities for future policy benefits, as well as estimates with respect to pension and postretirement benefits other than pensions and certain compensation accruals.

In addition to the estimates presented in the following tables, the Notes to the Consolidated Financial Statements describe other estimates that management has made in preparation of the financial statements.

Management believes the current assumptions used to estimate amounts reflected in our Consolidated Financial Statements are appropriate.

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The tables below present the adverse impacts of certain possible changes in assumptions.

The effect of assumption changes in the opposite direction would be a positive impact to our consolidated results of operations, liquidity or financial condition, except for assessing impairment of goodwill.

The effect of assumption changes in the opposite direction would be a positive impact to our consolidated results of

operations, liquidity or financial condition, except for assessing impairment of goodwill.

Balance Sheet Caption /

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Intangible assets primarily reflect the value of customer relationships and other intangibles acquired in business combinations.

Fair values of reporting units are estimated using models and assumptions that we believe a hypothetical market participant would use to determine a current transaction price.

The significant assumptions and estimates used in determining fair value include the discount rate and future cash flows.

Fair values of reporting units are estimated based on discounted cash flow analysis and market approach models using assumptions that we believe a hypothetical market participant would use to determine a current transaction price.

The significant assumptions and estimates used in determining fair value primarily include the discount rate and future cash flows.

A discount rate is selected to correspond with each reporting unit's weighted average cost of capital, consistent with that used for investment decisions considering the specific and detailed operating plans and strategies within each reporting unit.

Projections of future cash flows for each reporting unit are consistent with our annual planning process for revenues, pharmacy costs, benefits expenses, operating expenses, taxes, capital levels and long-term growth rates.

In addition to these assumptions, we consider market data to evaluate the fair value of each reporting unit.

Projections of future cash flows differ by reporting unit and are consistent with our ongoing strategy and projection processes.

Future cash flows for Evernorth are primarily driven by the forecasted gross margins of the business, as well as operating expenses and long-term growth rates.

Future cash flows for our other reporting units are primarily driven by forecasted revenues, benefit expenses, operating expenses and long-term growth rates.

The fair value of intangibles and the amortization method were determined using an income approach that relies on projected future cash flows including key assumptions for customer attrition and discount rates.

Management revises amortization periods if it believes there has been a change in the length of time that an intangible asset will continue to have value.

Government reporting unit contracts with CMS to provide managed health care services, including Medicare Advantage and Medicare-approved prescription drug plans.

Estimated future cash flows for this reporting unit's Medicare Advantage business incorporate the current reimbursement structure for 2022 and beyond.

Revenues from the Medicare programs are dependent, in whole or in part, upon annual funding from the federal government through CMS.

Funding levels for these programs are dependent on many factors including changes to the risk adjustment payment methodology, government efforts to contain health care costs, budgetary constraints and general political issues and priorities.

The Company conducts its quantitative evaluation for goodwill impairment at least annually during the third quarter at the reporting unit level and performs qualitative impairment assessments on a quarterly basis to determine if events or changes in circumstances indicate that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value.

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If we consistently do not achieve our earnings and cash flow projections or our cost of capital rises significantly, the assumptions and estimates underlying the goodwill and intangible asset impairment evaluations could be adversely affected and result in future impairment charges that would negatively impact our operating results and financial position.

Specific to the U.S.

Government reporting unit, in 2021 we experienced elevated medical claims and lower risk adjustment revenues primarily due to the COVID-19 pandemic.

If these factors were to worsen or continue beyond our current expectations, profitability could be further impacted and significantly reduce the fair value of this reporting unit.

Balance Sheet Caption /

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· 2020 – $1,210

See Note 20 to the Consolidated Financial Statements for additional discussion around uncertain tax positions and the Liquidity and Capital Resource section of this MD&A for a discussion of their potential impact on liquidity.

See Note 21 to the Consolidated Financial Statements for additional discussion around uncertain tax positions and the Liquidity and Capital Resources section of this MD&A for a discussion of their potential impact on liquidity.

The factors that could impact our estimates of uncertain tax positions include the likelihood of being sustained upon audit based on the technical merits of the tax position and related assumed interest and penalties.

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Nature of Critical Accounting Estimate Effect if Different Assumptions Used

Unpaid claims and claim expenses – U.S.

Unpaid claims and claim expenses – Cigna Healthcare

Unpaid claims and claim expenses include both reported claims and estimates for losses incurred but not yet reported.

Unpaid claims and claim expenses in U.S.

Medical are primarily impacted by assumptions related to completion factors and medical cost trend.

Unpaid claims and claim expenses in Cigna Healthcare are primarily impacted by assumptions related to completion factors and medical cost trend.

Variation of actual results from either assumption could impact the unpaid claims balance as noted below.

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Completion factors may be affected if actual claims submission rates from providers differ from estimates (that can be influenced by a number of factors, including provider mix and electronic versus manual submissions), or if changes to the Company's internal claims processing patterns occur.

Unpaid claims and claim expenses for the U.S.

Medical segment as of December 31 were as follows (in millions):

Unpaid claims and claim expenses for the Cigna Healthcare segment as of December 31 were as follows (in millions):

· 2021 – gross $4,261;

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The following section of this MD&A discusses the results of each of our segments.

See Note 1 to the Consolidated Financial Statements for a description of our segments.

In segment discussions, we present adjusted revenues and “pre-tax adjusted income from operations,” defined as income before taxes excluding realized investment gains (losses), amortization of acquired intangible assets, special items and, for periods prior to 2020, results of transitioning clients.

Ratios presented in this segment discussion exclude the same items as pre-tax adjusted income from operations.

Cigna entered into a definitive agreement in October 2021 to sell its life, accident and supplemental benefits businesses in seven countries to Chubb for $5.75 billion cash.

In connection with the pending Chubb Transaction, we revised our business reporting structure.

As such, we adjusted our segment reporting effective in the fourth quarter of 2021 so that the results previously reported in the International Markets segment are now reported as follows:

• The businesses to be retained by Cigna are now reported in the newly created International Health operating segment that will be aggregated with our existing U.S.

Commercial and U.S.

Government operating segments in the renamed Cigna Healthcare reporting segment (previously named U.S.

• The businesses to be sold pursuant to the Chubb Transaction are now reported in Other Operations.

See Note 1 to the Consolidated Financial Statements for further description of our segments.

In segment discussions, we present "adjusted revenues" and "pre-tax adjusted income (loss) from operations," defined as income (loss) before income taxes excluding net realized investment results, amortization of acquired intangible assets, results of transitioning clients prior to 2020 and special items.

Cigna's share of certain realized investment results of its joint ventures reported in the Cigna Healthcare segment using the equity method of accounting are also excluded.

Special items are matters that management believes are not representative of the underlying results of operations due to their nature or size.

Ratios presented in this segment discussion exclude the same items as adjusted revenues and pre-tax adjusted income (loss) from operations.

See Note 23 to the Consolidated Financial Statements for additional discussion of these metrics and a reconciliation of income before income taxes to pre-tax adjusted income from operations, as well as a reconciliation of total revenues to adjusted revenues.

Note 23 to the Consolidated Financial Statements also explains that segment revenues include both external revenues and sales between segments that are eliminated in Corporate.

In these segment discussions, we also present “pre-tax adjusted margin,” defined as pre-tax adjusted income from operations divided by adjusted revenues.

As of the third quarter 2020, the segment previously reported as Health Services is reported as Evernorth, and the segment previously reported as Integrated Medical is reported as U.S.

There are no changes to the underlying business reported in either segment.

In these segment discussions, we also present "pre-tax adjusted margin," defined as pre-tax adjusted income (loss) from operations divided by adjusted revenues.

See the "Executive Overview" section of this MD&A for summarized financial results of each of our segments.

Evernorth Segment

Evernorth includes a broad range of coordinated and point solution health services, including pharmacy solutions, benefits management solutions, care solutions and intelligence solutions.

As described in the introduction to Segment Reporting, Evernorth performance is measured using the below metrics:

• Adjusted gross profit and pre-tax adjusted income from operations, which exclude the impact of special items.

• Adjusted pharmacy script volume is calculated by multiplying the total non-specialty network scripts filled through 90-day programs and home delivery scripts by three and counting all other network and specialty scripts as one script.

• Generic fill rate is defined as the total number of generic scripts divided by the total overall scripts filled.

Generally, higher generic fill rates reduce revenues, as generic drugs are typically priced lower than the branded drugs they replace.

However, as ingredient cost paid to pharmacies on generic drugs is incrementally lower than the price charged to our clients, higher generic fill rates generally have a favorable impact on our gross profit.

The home delivery generic fill rate is currently lower than the network generic fill rate as fewer generic substitutions are available among maintenance medications (such as therapies for chronic conditions) commonly dispensed from home delivery pharmacies as compared to acute medications that are primarily dispensed by pharmacies in our retail networks.

The key factors that impact Evernorth revenues and costs of revenues are volume, mix of claims and price.

Evernorth includes a broad range of coordinated and point solution health services and capabilities, as well as those from partners across the healthcare system, in pharmacy solutions, benefits management solutions, care delivery and care management solutions and intelligence solutions.

As described in the introduction to Segment Reporting, Evernorth's performance is measured using adjusted revenues and pre-tax adjusted income from operations.

The key factors that impact Evernorth's pharmacy revenues and pharmacy and other service costs are volume, mix of claims and price.

These key factors are discussed further below.

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In addition to the types of drugs, the mix of generic claims (i.e., generic fill rate) also impacts our gross profit.

Generally, higher generic fill rates reduce revenues, as generic drugs are typically priced lower than the branded drugs they replace.

Furthermore, our gross profit differs among network, home delivery and specialty distribution methods and can impact our profitability.

• Our client contract pricing is impacted by our ongoing ability to negotiate supply chain contracts for pharmacy network, pharmaceutical and wholesaler purchasing and manufacturer rebates.

As we seek to improve the effectiveness of our integrated solutions for the benefit of our clients, we are continuously innovating and optimizing the supply chain.

Our gross profit could also increase or decrease as a result of supply chain initiatives implemented.

• Our client contract pricing is impacted by our ongoing ability to negotiate favorable contracts for pharmacy network, pharmaceutical and wholesaler purchasing and manufacturer rebates.

As we seek to improve the effectiveness of our

integrated solutions for the benefit of our clients, we are continuously innovating and improving affordability.

Our gross profit could also increase or decrease as a result of drug purchasing contract initiatives implemented.

Inflation also impacts our pricing because most of our contracts provide that we bill clients and pay pharmacies based on a generally recognized price index for pharmaceuticals.

Therefore, the rate of inflation for prescription drugs and our efforts to manage this inflation for our clients can affect our revenues and cost of revenues.

Therefore, the rate of inflation for prescription drugs and our efforts to manage this inflation for our clients continues to be a significant driver of our revenues and cost of revenues in the current environment.

In this MD&A, we present revenues and gross profit, as well as adjusted revenues and adjusted gross profit, consistent with our segment reporting metrics, which exclude special items and, for periods prior to 2020, contributions from transitioning clients.

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therefore, beginning in 2020, we no longer exclude results of transitioning clients from our adjusted metrics.

Additionally, for the year ended December 31, 2020, we recorded an adjustment related to a former client contract that was excluded from our adjusted metrics.

See the "Key Transactions and Business Developments" section of this Form 10-K MD&A for further discussion of transitioning clients and why we present this information.

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(Unfavorable)

(In millions) 2020 2019 2018 2020 vs.

(Dollars in millions) 2021 2020 2019 2021 vs.

2020 2020 vs.

Total revenues $ 116,334 $ 109,794 $ 7,065 $ 6,540 6 % $ 102,729 N/M

Total revenues $ 131,912 $ 116,334 $ 109,794 $ 15,578 13 % $ 6,540 6 %

Transitioning clients — — (13,347) — N/M 13,347 N/M

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Adjusted revenues (1)

$ 116,130 $ 96,447 $ 6,606 $ 19,683 20 $ 89,841 N/M

Gross profit $ 7,797 $ 8,908 $ 604 $ (1,111) (12) $ 8,304 N/M

$ 131,912 $ 116,130 $ 96,447 $ 15,782 14 % $ 19,683 20 %

Gross profit $ 8,408 $ 7,797 $ 8,908 $ 611 8 % $ (1,111) (12) %

Adjusted gross profit (1)

$ 7,593 $ 6,984 $ 531 $ 609 9 $ 6,453 N/M

Pre-tax adjusted income from operations $ 5,363 $ 5,092 $ 380 $ 271 5 % $ 4,712 N/M

$ 8,408 $ 7,593 $ 6,984 $ 815 11 % $ 609 9 %

Pre-tax adjusted income from operations $ 5,818 $ 5,363 $ 5,092 $ 455 8 % $ 271 5 %

Pre-tax adjusted margin 4.4 % 4.6 % 5.3 % (20) bps (70) bps

Adjusted expense ratio (2)

1.9 % 1.9 % 2.0 % –

For the Years Ended December 31, Change Favorable

(Unfavorable) Change Favorable

(Unfavorable)

(Dollars and adjusted scripts in millions) 2020 2019

(Dollars and adjusted scripts in millions) 2021 2020 2019 2021 vs.

2020 2020 vs.

Selected Financial Information (1)

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Adjusted home delivery and specialty revenues 54,391 49,886 45,836 9 % 9 %

Other revenues 5,403 4,900 10 %

Other pharmacy revenues 6,428 5,403 4,900 19 % 10 %

Total adjusted pharmacy revenues $ 125,811 $ 111,470 $ 92,219 13 % 21 %

Adjusted fees and other revenues 6,084 4,628 4,168 31 % 11 %

Net investment income 17 32 60 (47) % (47) %

Adjusted revenues $ 131,912 $ 116,130 $ 96,447 14 % 20 %

Pharmacy script volume

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Adjusted home delivery and specialty scripts (3)

283 287 283 (1) % 1 %

Total adjusted scripts (3)

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Generic fill rate (4)

Network 87.4 % 87.1 % 30 bps

Home delivery 85.2 % 84.3 % 90 bps

Overall generic fill rate 87.2 % 86.8 % 40 bps

(1) Amounts exclude special items and, for periods prior to 2020, contributions from transitioning clients.

Network 85.4 % 87.4 % 87.1 % (200) bps 30 bps

Home delivery 85.9 % 85.2 % 84.3 % 70 bps 90 bps

Overall generic fill rate 85.5 % 87.2 % 86.8 % (170) bps 40 bps

(1) Amounts exclude special items and for periods prior to 2020, contributions from transition clients for the year ended December 31, 2019.

(2) Adjusted expense ratio is calculated as selling, general and administrative expense excluding contributions from transition clients for the year ended December 31, 2019 as a percentage of adjusted revenues.

(3) Non-specialty network scripts filled through 90-day programs and home delivery scripts are multiplied by three.

All other network and specialty scripts are counted as one script.

(4) Generic fill rate is defined as the total number of generic scripts divided by the total overall scripts filled.

2021 versus 2020

Adjusted network revenues increased, reflecting increased prices, due to inflation on branded drugs and higher claims volume, primarily due to our collaboration with Prime Therapeutics.

These increases were partially offset by claims mix due to an increase in the generic fill rate after excluding the impact of COVID-19 vaccines.

Adjusted home delivery and specialty revenues increased, reflecting higher specialty claims volume due in part to our collaboration with Prime Therapeutics, as well as increased prices, primarily due to inflation on branded drugs.

These increases were partially offset by slightly lower home delivery claims volume.

Other pharmacy revenues increased, reflecting higher volume from our CuraScript Specialty Distribution business.

Adjusted fees and other revenues increased, reflecting customer growth from our services supporting benefits management solutions, including customer growth from certain fee based contractual arrangements and the acquisition of MDLIVE.

Adjusted gross profit and pre-tax adjusted income from operations increased, reflecting continued contract affordability improvements and business growth.

Pre-tax adjusted income from operations increase was partially offset by strategic investments in expanding partnerships, new businesses and solutions, and digital technology.

The expense ratio was flat reflecting higher revenues as well as increased strategic investments in expanding partnerships, new businesses and solutions, and digital technology in the year ended December 31, 2021 offset by increased operating expenses due to client transitions in the year ended December 31, 2020.

2020 versus 2019

In the first quarter of 2020, U.S.

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Commercial operating segment customers transitioned to Express Scripts' retail pharmacy network.

Results of operations for 2018 reflected the results for the period following the acquisition of Express Scripts on December 20, 2018 along with the legacy Cigna home delivery business.

Adjusted network revenues.

The increase reflected the transition of U.S.

Medical’s customers, higher claims volume, due to our collaboration with Prime Therapeutics, and increased prices due to inflation on branded drugs.

Adjusted network revenues increased, reflecting the transition of Cigna Healthcare's customers, higher claims volume due to our collaboration with Prime Therapeutics and increased prices due to inflation on branded drugs.

These favorable effects were partially offset by claims mix due to the increase in the generic fill rate.

Adjusted home delivery and specialty revenues.

The increase reflected higher prices, due to inflation on branded drugs and higher home delivery and specialty claims volume.

Adjusted home delivery and specialty revenues increased, reflecting higher prices, due to inflation on branded drugs and higher home delivery and specialty claims volume.

These increases were partially offset by claims mix due to an increase in the generic fill rate.

Adjusted gross profit.

The increase reflected customer growth, higher adjusted pharmacy script volumes, benefits from the effective management of supply chain and the favorable impact of claims mix as a result of the types of drugs dispensed, the distribution method used for dispensing and fulfilling and an increase in the generic fill rate.

Pre-tax adjusted income from operations.

The increase reflected customer growth, higher adjusted pharmacy scripts volumes, benefits from the effective management of supply chain, and the favorable impact of claims mix as a result of the types of drugs dispensed, the distribution method used for dispensing and fulfilling and an increase in the generic fill rate, partially offset by an increase in operating expenses due to client transitions.

Medical Segment

Medical includes Cigna’s U.S.

Commercial and U.S.

Government businesses that provide comprehensive medical and coordinated solutions to clients and customers.

Adjusted gross profit and pre-tax adjusted income from operations increased, reflecting customer growth, higher adjusted pharmacy scripts volumes, continued contract affordability improvements and the favorable impact of claims mix as a result of the types of drugs dispensed, the distribution method used for dispensing and fulfilling and an increase in the generic fill rate.

Pre-tax adjusted income from operations increase was partially offset by an increase in operating expenses due to client transitions.

The expense ratio was lower, reflecting higher revenues and increased operating expenses due to client transitions.

Cigna Healthcare Segment

Cigna Healthcare includes Cigna's U.S.

Commercial, U.S.

Government and International Health businesses, which provide comprehensive medical and coordinated solutions to clients and customers to support whole-person health needs.

Commercial products and services include medical, pharmacy, behavioral health, dental, vision, health advocacy programs and other products and services for insured and self-insured customers.

Government solutions include Medicare Advantage, Medicare Supplement, and Medicare Part D plans for seniors, Medicaid plans, and individual health insurance plans both on and off the public exchanges.

As described in the introduction to Segment Reporting, performance of the U.S.

Medical segment is measured using pre-tax adjusted income from operations.

Key factors affecting profitability for this segment include:

Government solutions include Medicare Advantage, Medicare Supplement and Medicare Part D plans for seniors and individual health insurance plans both on and off the public exchanges.

International Health solutions include health care coverage in our international markets, as well as health care benefits for globally mobile individuals and employees of multinational organization.

The Cigna Healthcare segment is comprised of the previously named U.S.

Medical segment and the businesses to be retained from the previous International Markets segment.

The addition of International Health to the Cigna Healthcare segment did not have a material impact on the business drivers which contributed to changes in results of operations when comparing 2020 to 2019.

As described in the introduction to Segment Reporting, performance of the Cigna Healthcare segment is measured using adjusted revenues and pre-tax adjusted income from operations.

Key factors affecting results for this segment include:

• customer growth;

• revenues from integrated specialty products, including pharmacy services sold to clients and customers across all funding solutions;

• revenue growth;

• percentage of Medicare Advantage customers in plans eligible for quality bonus payments;

• benefit expenses as a percentage of premiums (medical care ratio or “MCR”) for our insured commercial and government businesses;

• medical costs as a percentage of premiums (medical care ratio or "MCR") for our insured businesses;

• selling, general and administrative expense as a percentage of adjusted revenues (expense ratio).

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(Unfavorable)

(In millions) 2020 2019 2018 2020 vs.

(Dollars in millions) 2021 2020 2019 2021 vs.

2020 2020 vs.

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Expense ratio 21.0 % 23.5 % 23.4 % 250 bps (10) bps

For the Years Ended December 31, Change Favorable

(Unfavorable) Change Favorable

(Unfavorable)

(In thousands) 2020 2019 2018 2020 vs.

2019 2019 vs.

Medical Customers

2,141 2,114 1,911 27 1 % 203 11 %

1,387 1,361 1,407 26 2 % (46) (3) %

Insured 3,528 3,475 3,318 53 2 % 157 5 %

Service 11,485 12,073 12,071 (588) (5) % 2 — %

Total 15,013 15,548 15,389 (535) (3) % 159 1 %

As of December 31, Change Favorable

(Unfavorable) Change Favorable

(Unfavorable)

(In millions) 2020 2019 2018 2020 vs.

2019 2019 vs.

Unpaid claims and claim expenses – U.S.

$ 3,184 $ 2,892 $ 2,697 $ 292 10 % $ 195 7 %

2021 versus 2020

Adjusted revenues.

The increase for the year ended December 31, 2020 compared with 2019 reflects customer growth in our Medicare Advantage and U.S.

Commercial insured businesses, as well as higher premium rates due to anticipated underlying medical cost trend and the resumption of the health insurance industry tax.

These favorable effects were partially offset by the impact of premium relief programs for clients beginning in the second quarter of 2020 in response to significantly lower than historical utilization as individuals deferred care due to the COVID-19 pandemic.

Pre-tax adjusted income from operations was essentially flat reflecting customer growth in our U.S.

Commercial insured and Medicare Advantage businesses and net favorable COVID-19 related impacts;

offset by the return of the health insurance industry tax and less favorable prior period development.

Adjusted revenues increased, reflecting Medicare Advantage and Individual customer growth, higher premium rates due to anticipated underlying medical cost trend, higher net investment income and the absence of the 2020 premium relief programs for clients implemented in response to significantly lower than historical utilization as individuals deferred care due to the COVID-19 pandemic.

Pre-tax adjusted income from operations decreased due to increased utilization of health care services by our customers, including increased direct costs of COVID-19 testing, treatment and vaccines;

partially offset by higher net investment income, increased specialty contributions, the absence of the premium relief programs and the repeal of the health insurance industry tax.

The impacts of COVID-19 remain uncertain and could vary significantly as discussed in the "COVID-19 Update" section of this MD&A.

The medical care ratio increased due to increased utilization of health care services by our customers, including increased direct costs of COVID-19 testing, treatment and vaccines as well as the repeal of the health insurance industry tax;

partially offset by the absence of the premium relief programs.

The expense ratio decreased, reflecting increased revenues, the repeal of the health insurance industry tax, favorable litigation developments and efficiencies from continued disciplined expense management.

2020 versus 2019

Adjusted revenues increased, reflecting Medicare Advantage and U.S.

Commercial insured customer growth, as well as higher premium rates due to anticipated underlying medical cost trend and the resumption of the health insurance industry tax.

These favorable effects were partially offset by the impact of 2020 premium relief programs for clients implemented in response to significantly lower than historical utilization as individuals deferred care due to the COVID-19 pandemic.

Pre-tax adjusted income from operations increased, reflecting net favorable COVID-19 related impacts as well as U.S.

Commercial insured and Medicare Advantage customer growth;

partially offset by the resumption of the health insurance industry tax and less favorable prior period development.

COVID-19 related impacts include deferral of care by our customers;

partially offset by direct COVID-19 costs, costs of actions we have taken to support customers, providers and employees, and increased disenrollment resulting from the economic impacts of the pandemic.

Medical care ratio.

The decrease reflects COVID-19 related impacts and the pricing effect of the health insurance industry tax.

The medical care ratio decreased driven by COVID-19 related impacts and the pricing effect of the health insurance industry tax.

COVID-19 related impacts include deferral of care by our customers;

partially offset by direct COVID-19 costs and premium relief programs extended to employer clients.

Expense ratio.

The expense ratio was flat reflecting higher insured revenues as well as efficiencies from continued disciplined expense management and the resumption of the health insurance industry tax.

Other Items Affecting U.S.

Medical Results

Unpaid Claims and Claim Expenses

Our unpaid claims and claim expenses liability was higher as of December 31, 2020 compared with December 31, 2019, primarily due to customer growth in our Medicare Advantage and U.S.

Commercial insured businesses.

Medical Customers

Our medical customer base decreased at December 31, 2020 compared with December 31, 2019, reflecting a lower customer base in our Middle Markets and National Accounts segments and increased disenrollment resulting from the economic impacts of the COVID-19 pandemic;

partially offset by growth in our Select segment and our Medicare Advantage business.

A medical customer is defined as a person meeting any one of the following criteria:

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• has medical claims that are administered by us.

International Markets Segment

As described in the introduction to Segment Reporting, performance of the International Markets segment is measured using pre-tax adjusted income from operations.

Key factors affecting pre-tax adjusted income from operations for this segment are:

• premium growth, including new business and customer retention;

• benefit expenses as a percentage of premiums (loss ratio);

• selling, general and administrative expense as a percentage of revenues (expense ratio and acquisition cost ratio);

• the impact of foreign currency movements.

Results of Operations

Financial Summary For the Years Ended December 31, Change Favorable

As of December 31, Change Favorable

(Unfavorable) Change Favorable

(Unfavorable)

(In thousands) 2021 2020 2019 2021 vs.

2020 2020 vs.

Cigna Healthcare Medical Customers

Insured 4,757 4,538 4,466 219 5 % 72 2 %

Commercial 2,166 2,141 2,114 25 1 % 27 1 %

Government 1,510 1,387 1,361 123 9 % 26 2 %

International Health (1)

1,081 1,010 991 71 7 % 19 2 %

Services only 12,324 12,112 12,671 212 2 % (559) (4) %

Commercial 11,688 11,485 12,073 203 2 % (588) (5) %

International Health (1)

636 627 598 9 1 % 29 5 %

Total 17,081 16,650 17,137 431 3 % (487) (3) %

(1) International Health excludes medical customers served by less than 100% owned subsidiaries and customers that are part of the businesses to be sold pursuant to the Chubb Transaction.

2021 versus 2020

Our medical customer base increased at December 31, 2021 compared with December 31, 2020 reflecting a higher customer base in our Middle Market, Select and International Health segments as well as our Individual business and Medicare Advantage plans;

partially offset by a lower customer base in our National segment.

2020 versus 2019

Our medical customer base decreased at December 31, 2020 compared with December 31, 2019, reflecting a lower customer base in our Middle Market and National Accounts segments and increased disenrollment resulting from the economic impacts of the COVID-19 pandemic;

partially offset by growth in our Select segment, Medicare Advantage plans and International Health.

Unpaid Claims and Claim Expenses

As of December 31, Change Increase (Decrease) Change Increase (Decrease)

(In millions) 2021 2020 2019 2021 vs.

2020 2020 vs.

Adjusted revenues $ 5,877 $ 5,615 $ 5,366 $ 262 5 % $ 249 5 %

Pre-tax adjusted income from operations $ 900 $ 762 $ 735 $ 138 18 % $ 27 4 %

Pre-tax adjusted margin 15.3 % 13.6 % 13.7 % 170 bps (10) bps

Loss ratio 56.5 % 57.3 % 57.4 % 80 bps 10 bps

Acquisition cost ratio 11.3 % 12.9 % 13.1 % 160 bps 20 bps

Expense ratio (excluding acquisition costs) 20.2 % 19.5 % 18.9 % (70) bps (60) bps

Unpaid claims and claim expenses – Cigna Healthcare

$ 4,261 $ 3,695 $ 3,336 $ 566 15 % $ 359 11 %

2021 versus 2020

Adjusted revenues increased mainly due to business growth in Asia and Europe, partially offset by premium relief programs, primarily in Europe and unfavorable foreign currency movements.

Pre-tax adjusted income from operations increased reflecting lower acquisition and loss ratios and business growth, primarily in Asia, partially offset by higher expense ratios.

The ratios in 2020 reflect the costs of actions to support clients;

additionally, the expense ratio reflects actions to support employees and investments in the business for future growth.

The segment’s loss ratio decreased reflecting lower medical utilization due to the COVID-19 pandemic, partially offset by premium relief programs.

The acquisition cost ratio decreased reflecting an update to our commission deferral process and lower acquisition expenses in Asia, partially offset by premium relief programs.

The expense ratio (excluding acquisition costs) increased, reflecting strategic investments and the unfavorable impact of premium relief programs.

Other Items Related to International Markets Results

South Korea is the single largest geographic market for our International Markets segment.

For the year ended December 31, 2020, South Korea generated 38% of the segment’s adjusted revenues and 60% of the segment’s pre-tax adjusted income from operations.

Group Disability and Other

Group Disability and Other included for the period presented, Cigna’s Group Disability and Life business which offered group long-term and short-term disability, and group life, accident, voluntary and specialty insurance products and services.

Additionally, this segment includes Corporate Owned Life Insurance (“COLI”) and the Company’s run-off operations.

As described in the introduction of Segment Reporting, performance of Group Disability and Other is measured using pre-tax adjusted income from operations.

Key factors affecting pre-tax adjusted income from operations are:

• premium growth, including new business and customer retention;

• net investment income;

• benefit expenses as a percentage of premiums (loss ratio);

• selling, general and administrative expense as a percentage of revenues excluding net investment income (expense ratio).

Our unpaid claims and claim expenses liability was higher as of December 31, 2021 compared with December 31, 2020, primarily due to Medicare Advantage and Individual customer growth and increased claim volumes.

2 020 versus 2019

Our unpaid claims and claim expenses liability was higher as of December 21, 2020 compared with December 31, 2019, primarily due to Medicare Advantage and U.S.

Commercial insured customer growth.

Other Operations

For 2021, 2020 and 2019, Other Operations includes International businesses to be sold, Corporate Owned Life Insurance ("COLI") and the Company's run-off operations.

Prior to the sale of the Group Disability and Life business on December 31, 2020, Other Operations also included Cigna's Group Disability and Life business which offered group long-term and short-term disability and group life, accident, voluntary and specialty insurance products and services.

Other Operations was previously named Group

Disability and Other.

As described in the introduction of Segment Reporting, performance of Other Operations is measured using adjusted revenues and pre-tax adjusted income from operations.

Results of Operations

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(Unfavorable)

(In millions) 2020 2019 2018 2020 vs.

(Dollars in millions) 2021 2020 2019 2021 vs.

2020 2020 vs.

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2021 versus 2020

Adjusted revenues increased due to growth in disability, life and voluntary products, partially offset by lower investment income.

Pre-tax adjusted income from operations and margin decreased due to unfavorable life claims experience related to the COVID-19 pandemic, unfavorable disability claims experience and lower investment income, partially offset by favorable results in our voluntary products.

Group Disability and Life Business.

As discussed further in the Executive Overview section of this MD&A, we sold our U.S.

Group Disability and Life business on December 31, 2020.

Because this business constituted the vast majority of the segment, going forward, we would expect a substantial decline in adjusted revenues and adjusted income from operations in this segment.

Corporate reflects amounts not allocated to operating segments, including net interest expense (defined as interest on corporate debt less net investment income on investments not supporting segment and other operations), certain litigation matters, expense associated with our frozen pension plans, charitable contributions, severance, certain overhead and project costs and intersegment eliminations for products and services sold between segments.

Adjusted revenues decreased due to the sale of the Group Disability and Life business on December 31, 2020.

Because the sold business constituted a significant portion of Other Operations, adjusted revenues substantially declined in 2021 compared to 2020.

Pre-tax adjusted income from operations also declined due to the sale of the Group Disability and Life Insurance business.

That decrease was partially offset by an increase in earnings from the International businesses held for sale.

2020 versus 2019

Adjusted revenues increased, reflecting business growth in the International businesses held for sale and the sold Group Disability and Life business.

Partially offsetting those favorable effects were lower net investment income in the sold Group Disability and Life business and unfavorable foreign currency movements in the International businesses held for sale.

Pre-tax adjusted income from operations decreased due to lower earnings in the sold Group Disability and Life business reflecting unfavorable life claims experience related to the COVID-19 pandemic, unfavorable disability claim experience and lower investment income, partially offset by favorable results in the voluntary products.

Those unfavorable effects were partially offset by improved earnings in the International businesses held for sale reflecting improved margin and business growth.

Other Items Related to International Businesses Subject to Definitive Purchase Agreement

For the year ended, December 31, 2021, 86% of the segment's adjusted revenues and 89% of the segment's pre-tax adjusted income from operations was associated with International businesses held for sale.

Corporate reflects amounts not allocated to operating segments, including net interest expense (defined as interest on corporate debt less net investment income on investments not supporting segment and other operations), certain litigation matters, expense associated with our frozen pension plans, charitable contributions, severance, certain overhead and enterprise-wide project costs and intersegment eliminations for products and services sold between segments.

Financial Summary For the Years Ended December 31, Change Favorable (Unfavorable) Change Favorable (Unfavorable)

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2020 2020 vs.

Pre-tax adjusted loss from operations $ (1,552) $ (1,824) $ (403) $ 272 15 % $ (1,421) N/M %

Pre-tax adjusted (loss) from operations $ (1,339) $ (1,552) $ (1,824) $ 213 14 % $ 272 15 %

2021 versus 2020

Pre-tax adjusted loss from operations was lower, reflecting lower interest expense due to lower levels of debt.

Pre-tax adjusted loss from operations was lower, primarily reflecting lower interest expense due to a lower average interest rate and lower levels of outstanding debt resulting from debt repayments.

2 020 versus 2019

Pre-tax adjusted loss from operations was lower, primarily reflecting lower interest expense due to lower levels of debt.

INVESTMENT ASSETS

The following table presents our investment asset portfolio excluding separate account assets as of December 31, 2021 and December 31, 2020.

Additional information regarding our investment assets is included in Notes 11, 12, 13 and 14 to the Consolidated Financial Statements.

Additional information regarding our investment assets is included in Notes 11, 12, 13 and 14 to the Consolidated

Financial Statements.

For comparisons of investment assets portfolio excluding separate account assets as of December 31, 2020 compared with December 31, 2019, please refer to the previously filed MD&A included in Part II, Item 7 of our Form 10-K for the year ended December 31, 2020.

(In millions) December 31,

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Short-term investments 428 359

Investments classified as assets of business held for sale (1)

Investments classified as assets of businesses held for sale (1)

Investments per Consolidated Balance Sheets $ 19,358 $ 24,593

(1) On December 31, 2020, Cigna completed the sale of its U.S.

Group Disability and Life business and transferred a total of $8.4 billion of investments to New York Life Insurance Company as part of this divestiture.

The investment assets transferred to New York Life were primarily debt securities and, to a lesser extent, commercial mortgage loans.

The table above includes $7.7 billion as of December 31, 2019 of investments associated with this business that was previously held for sale.

(1) Investments related to the international life, accident and supplemental benefits businesses that are held for sale.

See Note 5 to the Consolidated Financial Statements for additional information.

Debt Securities

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Total $ 16,958 $ 18,131

As a result of the U.S.

Group Disability and Life business divestiture, $7.8 billion of debt securities were transferred to New York Life on December 31, 2020, see Note 5 to the Consolidated Financial Statements for further information.

The debt securities transferred to New York Life were primarily Corporate and State and local government sectors.

This decrease in our debt securities portfolio was partially offset by an increase in valuations due to decreasing yields and net purchase activity during the year.

Our debt securities portfolio decreased during 2021, reflecting a decrease in valuations due to increasing yields and net sale activity.

As of December 31, 2021, $14.7 billion, or 87% of the debt securities in our investment portfolio were investment grade (Baa and above, or equivalent) and the remaining $2.3 billion were below investment grade.

The majority of the bonds that are below investment grade are rated at the higher end of the non-investment grade spectrum.

Although our allocation to below investment grade bonds has increased since the prior year, these quality characteristics have not otherwise changed materially from the prior year and remain consistent with our investment strategy.

Investments in debt securities are diversified by issuer, geography and industry as appropriate.

On an aggregate basis, the debt securities portfolio continues to perform according to original investment expectations.

However, due to the economic impacts of the COVID-19 pandemic, there are certain issuers, particularly within the aviation, energy and hospitality sectors, that are showing signs of distress, primarily in the form of requests for temporary covenant relief.

There were no material unrealized losses in any of these sectors as of the reporting date.

We continue to monitor the economic environment and its effect on our portfolio, and consider the impact of various factors in determinin g the allowance for credit losses on debt securities, which is discussed in Note 11 to the Consolidated Financial Statements.

Foreign government obligations are concentrated in Asia, primarily South Korea, consistent with our risk management practice and local regulatory requirements of our international business operations.

Corporate debt securities include private placement assets of $6.0 billion.

These quality characteristics have not materially changed since the prior year and remain consistent with our investment strategy.

Debt securities include private placement assets of $5.8 billion.

These investments are generally less marketable than publicly-traded bonds;

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We perform a credit analysis of each issuer and require financial and other covenants that allow us to monitor issuers for deteriorating financial strength and pursue remedial actions, if warranted.

Investments in debt securities are diversified by issuer, geography and industry.

On an aggregate basis, the debt securities portfolio continues to perform according to original investment expectations.

However, due to the economic impacts of the COVID-19 pandemic, there are certain issuers, particularly within the aviation, energy and hospitality sectors, that have shown signs of distress, primarily in the form of requests for temporary covenant relief.

There were no material unrealized losses in any of these sectors as of the reporting date.

We continue to monitor the economic environment and its effect on our portfolio and consider the impact of various factors in determinin g the allowance for credit losses on debt securities, which is discussed in Note 11 to the Consolidated Financial Statements.

Foreign government obligations are concentrated in Asia, primarily South Korea and Taiwan, consistent with our risk management practice and local regulatory requirements of our international business operations.

We expect the amount of these foreign government

obligations to decrease significantly during 2022 upon the close of our sale of certain international businesses as discussed in Note 5 to the Consolidated Financial Statements.

Commercial Mortgage Loans

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Our commercial mortgage loans are fixed rate loans, diversified by property type, location and borrower.

Given the quality and diversity of the underlying real estate, positive debt service coverage and significant borrower cash invested generally ranging between 30 and 40%, we remain confident that the vast majority of borrowers will continue to perform as expected under their contract terms.

Given the quality and diversity of the underlying real estate, positive debt service coverage and significant borrower cash invested in the property generally ranging between 30 and 40%, we remain confident that the vast majority of borrowers will continue to perform as expected under their contract terms.

For further discussion of the results and changes in key loan metrics, see Note 11 to the Consolidated Financial Statements.

As a result of the U.S.

Group Disability and Life business divestiture, $0.6 billion of commercial mortgage loans were transferred to New York Life on December 31, 2020, see Note 5 to the Consolidated Financial Statements for further information.

Loans are secured by high quality commercial properties, located in strong institutional markets and are generally made at less than 65% of the property's value at origination of the loan.

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We hold no direct residential mortgage loans and do not originate or service securitized mortgage loans.

Our annual in-depth review of our commercial mortgage loan investments is the primary mechanism for monitoring the overall quality rating of the mortgage portfolio.

We completed the annual in-depth review in the second quarter of 2021 which included an analysis of each underlying property's most recent annual financial statements, rent rolls and operating plans, as well as a physical inspection of the property and a review of applicable market reports.

The results of this annual review confirmed that the overall credit quality of our portfolio remains strong and was generally in line with the previous year's results.

COVID-19 has negatively impacted commercial real estate fundamentals and capital market activity with concentrated weakness in hotels and regional malls.

Our mortgage loan portfolio is well diversified by property type and geography with no material exposure to hotels and no exposure to regional shopping malls.

We continue to monitor the long-term impacts on the office sector due to growing headwinds:

expanded remote working flexibility, shorter term leases and corporate migration to lower cost states.

We continue to monitor the long-term impacts surrounding the office sector fundamentals due to multiple headwinds that may impact future valuations:

expanded work from home flexibility, shorter term leases, elevated tenant improvement allowances and corporate migration to lower cost states.

Our mortgage loans secured by office properties are in good standing.

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Other long-term investments of $3.6 billion as of December 31, 2021 included investments in securities limited partnerships and real estate limited partnerships, direct investments in real estate joint ventures and other deposit activity that is required to support various insurance and health services businesses.

The increase in other long-term investments is driven by net new funding activity.

The increase in other long-term investments of $0.7 billion since December 31, 2020 is primarily driven by net additional funding activity and value creation in the underlying investments.

These limited partnership entities typically invest in mezzanine debt or equity of privately-held companies and equity real estate.

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Also, the underlying investments are diversified by industry sector or property type and geographic region.

No single partnership investment exceeded 4% of our securities and real estate partnership portfolio.

No single partnership investment exceeded 4% of our securities and real estate limited partnership portfolio.

Income from our limited partnership investments is generally reported on a one quarter lag due to the timing of when financial information is received from the general partner or manager of the investments.

We could experience losses into future periods, but the magnitude of these losses will depend in part on the length and extent of the economic disruption, the speed of the recovery and the overall economic impacts.

Our net investment income increased significantly versus 2020 driven by the strong performance of assets underlying our limited partnership investments.

The broad recovery since the beginning of the outbreak of the COVID-19 pandemic has resulted in strong corporate earnings and higher public and private asset valuations.

We expect continued volatility in private equity and real estate fund performance going forward as fair market valuations are adjusted to reflect market and portfolio transactions.

We participate in an insurance joint venture in China with a 50% ownership interest.

We account for this joint venture on the equity method of accounting and report our share of the net assets of $0.8 billion in Other assets.

Our 50% share of the investment portfolio supporting the joint venture's business is approximately $5.6 billion, primarily invested in Chinese corporate and government debt securities diversified by issuer, industry and geography, as appropriate.

To a lesser extent and consistent with its investment strategy, the joint venture is invested in Chinese equity investments comprised of approximately 50% equity mutual funds, with the remainder invested in equity securities and private equity partnerships.

We account for this joint venture under the equity method of accounting and report our share of the net assets of $1.0 billion in Other assets.

Our 50% share of the investment portfolio supporting the joint venture's liabilities is approximately $8.4 billion as of December 31, 2021.

These investments were comprised of approximately 75% debt securities, including government and corporate debt diversified by issuer, industry and geography;

15% equities, including mutual funds, equity securities and private equity partnerships;

and 10% long-term deposits and policy loans.

Approximately 1% of the joint venture's investment assets are exposed to private real estate property developers in the China market.

We participate in the approval of the joint venture's investment strategy and continuously review its execution.

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Investment Outlook

The impact of COVID-19 on the economy, despite unprecedented monetary and fiscal support, and the uncertainty as to the strength and sustainability of the recovery prior to a widely available vaccine, continues to dominate financial markets.

The low interest rate environment continues to pressure income from both short-term and longer-term investments.

treasury rates remain near all-time lows and the wider market credit spreads experienced during the beginning of the second quarter of 2020 have meaningfully narrowed, resulting in historically low yields for investment grade assets.

We continue to actively monitor the economic impact of the pandemic, as well as fiscal and monetary responses, and their potential impact on the portfolio.

Net investment income projections into 2021 reflect continued market volatility and portfolio impacts, particularly in certain sectors such as aviation, hospitality and energy, as well as other areas most severely impacted by COVID-19.

We continue to actively monitor the economic impact of the pandemic, including supply chain, labor market and inflation dynamics, as well as fiscal and monetary responses and their potential impact on the portfolio.

Future realized and unrealized investment results will be driven largely by market conditions that exist when a transaction occurs or at the reporting date.

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Based on our strategy to match the duration of invested assets to the duration of insurance and contractholder liabilities, we expect to hold a significant portion of these assets for the long-term.

Although future impairment losses resulting from interest rate movements and credit deterioration due to both investment-specific and the global economic uncertainties discussed above remain possible, we do not expect these losses to have a material adverse effect on our financial condition or liquidity.

Although future declines in investment fair values resulting from interest rate movements and credit deterioration due to both investment-specific and the global economic uncertainties discussed above remain possible, we do not expect these losses to have a material adverse effect on our financial condition or liquidity.

Financial Instruments

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• Foreign currency exchange rate risk of the U.S.

dollar, net of derivatives used for hedging, is primarily to the South Korean won, Chinese yuan renminbi and New Zealand dollar.

dollar, net of derivatives used for hedging, is primarily to the Chinese yuan renminbi and South Korean won.

An unfavorable change in exchange rates reduces the carrying value of net assets denominated in foreign currencies.

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The effect of a hypothetical increase in interest rates, primarily on debt securities and commercial mortgage loans, was determined by estimating the present value of future cash flows using various models, primarily duration modeling.

The decrease in our sensitivity to market interest rates since the prior year is primarily due to our decreased interest sensitive investment portfolio base, due to the transfer of debt securities and commercial mortgage loans to New York Life on December 31, 2020.

See Note 5 to the Consolidated Financial Statements for additional information on the divestiture of our U.S.

Group Disability and Life business.

In the event of a hypothetical 100 basis point increase in interest rates, the fair value of the Company's long-term debt would decrease approximately $2.9 billion at December 31, 2021 and $3.0 billion at December 31, 2020.

7 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis